Ill 

..111, 


UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 


SCHOOL  OF  LAW 
LIBRARY 


A  TEEATISE 


LAW   OF   RAILKOAD 


AND   OTHER 


CORPORATE  SECURPWES^cujrt 


INCLUDING 


MUNICIPAL  AID  BONDS. 


BT 

LEONARD  A.  JONES, 

AUTHOR    OF    A    TREATISE    ON    MORTGAGES. 


BOSTON: 

HOUGHTON,  OSGOOD  AND   COMPANY. 

Zi)c  nitocrgtoc  prc£&  €nmbri&8C. 

1879. 


Copyright,  1879, 
By  LEONARD  A.  JONES. 


RIVERSIDE,    CAMBRIDGE: 
PRINTED    BY   H.    O.    HOUGHTON  AND    COMPANY. 


TO  THE  HONORABLE 

JOH^  F.   DILLON,  LL.  D., 

$ucg£  of  %  Circuit  Court  of  tbt  Suittb  States, 

IN   TESTIMONY    OF    THE    ESTEEM    WHICH   THE   AUTHOR    SHARES    WITH 

THE   PROFESSION   FOR  TOUR  JUDICIAL  OPINIONS  AND   LEGAL 

WRITINGS  UPON  THE  SUBJECTS  HERE  CONSIDERED, 

C&tfi  Creatine 
is    INSCRIBED. 


75601? 


PREFACE. 


The  author,  in  writing  his  Treatise  on  the  Law  of  Mortgages 
of  Real  Property,  at  first  intended  to  follow  out  the  application  of 
the  general  law  of  the  subject  to  mortgages  made  by  railroad  com- 
panies and  similar  corporations  ;  but  he  found  that  any  treatment 
he  could  give  these  special  topics  within  the  limits  of  that  work 
would,  from  its  brevity,  be  wholty  unsatisfactory.  This  fact,  to- 
gether with  the  consideration  that  nearly  all  the  adjudications 
upon  corporate  mortgages  relate  to  matters  mostly  foreign  to  the 
general  Law  of  Mortgages,  led  the  author  to  omit  these  matters 
from  his  work  upon  the  general  subject.  The  present  volume  is 
intended  to  make  good  that  omission. 

It  has  been  the  purpose  of  the  author  not  to  include  in  the  pres- 
ent treatise  subjects  elementary  or  general  in  the  Law  of  Mort- 
gages. The  public  nature  of  railroad  and  other  like  corporations, 
having  public  duties  to  perform,  in  return  for  the  franchises 
granted  them,  and  the  nature  and  extent  of  their  property,  have 
introduced  into  mortgages  of  their  franchises  and  property  new 
elements  of  law  which  have  now  developed  into  a  separate  branch 
of  jurisprudence.  A  glance  at  the  Table  of  Contents  of  this  vol- 
ume will  show  how  widely  the  topics  considered  differ  from  those 
which  arise  under  ordinary  mortgages ;  and  even  when  the  titles 
are  the  same,  an  examination  of  the  contents  will  generally  show 
that,  as  applied  to  these  corporate  securities,  the  substance  of  the 
law  is  different. 

The  securities  considered  in  this  book  are  of  quite  recent  ori- 
gin. For  the  most  part  they  are  the  outgrowth  of  the  recent  ex- 
traordinary development  of  the  railroad  system  of  this  country. 
Prior  to  the  year  18G0,  the  courts  had  only  in  a  few  instances 
been  called  upon  to  enforce  Railroad  Mortgages;  and  the  discs  ad- 
judicated since  the  year  1870  are  far  more  numerous  than  all  that 

v 


PREFACE. 


had  been  decided  before  that  time.  It  could  therefore  hardly  be 
expected  that  the  law  of  the  subject  should  in  so  short  a  time 
have  developed  into  a  complete  and  harmonious  system.  Yet  it 
seems  that  no  very  important  divisions  of  the  subject  remain  un- 
considered ;  while  the  leading  principles  of  the  law  have  been  as 
fully  and  conclusively  settled  as  they  will  be  after  a  century  of 
adjudications.  It  has  been  a  very  fortunate  circumstance  in  the 
growth  of  this  branch  of  jurisprudence  that  the  courts  leading  the 
way  in  it  have  generally  been  of  the  highest  authority,  both  in 
position  and  ability.  The  Supreme  Court  and  the  several  Circuit 
Courts  of  the  United  States  have,  directly  and  indirectly,  had  the 
larger  share  of  the  responsibility  of  moulding  the  law  of  these 
securities  ;  and  hence  there  is  less  diversity  of  opinion  in  it  than 
there  would  have  been  had  the  courts  of  the  several  states  in  the 
first  place  passed  upon  the  subjects  independently. 

But  while  the  present  development  of  the  law  of  corporate  se- 
curities is  such  as  to  render  possible  a  systematic  statement  of  it, 
the  decisions  are  not  so  numerous  as  to  debar  the  author  from  a 
separate  statement  and  examination  of  the  most  important  of 
them,  or  from  quoting  freely  from  the  opinions  of  learned  judges 
to  explain  and  confirm  new  and  leading  principles.  A  great  many 
of  the  cases  have  been  of  such  magnitude,  both  in  the  public  and 
the  private  interests  involved,  that  they  have  compelled  the  most 
careful  and  elaborate  attention,  both  by  counsel  in  their  prepa- 
ration and  by  courts  in  their  determination  ;  and  for  this  reason 
also  the  facts  of  the  cases  and  the  judgments  of  the  courts  com- 
mand a  careful  examination.  Thus  it  is  that  the  present  treatise 
differs  somewhat  from  the  author's  work  on  Mortgages,  in  consid- 
ering particular  cases  with  greater  fulness  of  statement  and  illus- 
tration ;  but  it  is  believed  that  this  mode  of  treatment  will  en- 
hance rather  than  diminish  the  usefulness  of  the  work.  In  the 
future,  as  the  decided  points  become  more  numerous,  the  state- 
ment of  the  law  will  necessarily  be  more  restricted  to  principles. 

Within  a  few  years  the  legislation  affecting  railroad  mortgages 
has  become  voluminous.  In  nearly  all  the  States  there  have  been 
enacted,  in  different  terms,  general  statutes  authorizing  railroad 
companies  to  convey  their  franchises  and  property  in  mortgage  ; 
statutes  giving  laborers  and  contractors  special  liens  upon  rail- 
roads for  work  done  and  materials  used  in  their  construction  or 
repair ;  and  statutes  authorizing  the  purchasers  of  railroads  upon 
vi 


PREFACE. 

foreclosure  sales  to  organize  new  corporations  to  hold  and  operate 
them.  There  have  also  been  enacted  numerous  statutes  relating 
to  mortgages  of  rolling  stock ;  to  the  making  of  foreclosure  sales ; 
to  the  rights  and  duties  of  mortgage  trustees,  and  to  the  appoint- 
ment of  receivers.  The  granting  of  municipal  aid  to  railroads  has 
been  either  the  subject  of  constitutional  or  legislative  provisions 
in  almost  all  the  States.  A  statement  of  the  principal  features 
of  the  statutory  law  of  the  subject  has  been  deemed  hardly  less 
important  than  a  full  presentation  of  the  decisions  of  the  courts. 

Leonard  A.  Jones. 

Boston,  February  7,  1879. 

vii 


TABLE  OF  CONTENTS. 


CHAPTER  I. 

POWER     OF    CORPORATIONS     TO     MORTGAGE    THEIR    PROPERTY     AND     FRAN- 
CHISES. 

SECTION 

I.  When  Legislative  Authority  is  essential  to  a  Mortgage  of  Cor- 
porate Property  and  Franchises 1-25 

II.  Statutes   authorizing   Railroad    Companies   to  mortgage   their 

Property  and  Franchises 26-67 


CHAPTER  II. 

FORM    AND    CONSTRUCTION    OF    CORPORATE    MORTGAGES. 

I.  Common  Kinds  of  Corporate  Mortgages    .... 
II.  Equitable  Mortgages 

III.  Statutory  Liens  and  Mortgages 

IV.  Who  may  execute  a  Corporate  Mortgage        .... 
V.  Construction  of  various  Provisions  of  Corporate  Mortgages 


68-72 
73-77 

78-83 
84-88 
89-98 


CHAPTER  III. 

PROPERTY   COVERED    BY   RAILROAD    MORTGAGES. 

I.  What  is  embraced  in  a  Mortgage  of  the  Undertaking    .         .         99-103 
II.  What  Property  passes  as  Appurtenant  to  the  Franchise     .         .  104-108 

III.  What  Personal  Property  passes  as  Fixtures  or  Parts  of    the 

Realty 109-113 

IV.  What  is  covered  by  a  Mortgage  of  the  Tolls  and  Income  of  a 

Railroad 114-120 


CHAPTER  IV. 

MORTGAGES    OF    AFTER-  ACQtH  II  Kl>    PROPERTY. 

I.  Principles  upon  which  After-acquired  Property  may  be  charged  121-127 
II.  What  Terms  are  Sufficient  to  include  After-acquired  Property    128-141 
III.  Mortgages  attach  t<>  After-acquired   Property  Bubject  to  Liens 

upon  it  when  acquired    .  142-145 

ix 


TABLE   OF   CONTENTS. 
CHAPTER  V. 

LEGAL  NATURE  OF  ROLLING  STOCK  OF  RAILROADS. 

SECTION 

I.  After-acquired  Rolling  Stock  is  subject  to  Mortgage        .         .  146-153 

II.  Rolling  Stock  regarded  as  Fixtures      ......  154-163 

III.  Rolling  Stock  regarded  as  Personal  Property  .         .         .  164-170 

IV.  Constitutional  and  Statutory  Provisions  regarding  Rolling  Stock  171-187 

CHAPTER  VI. 

MORTGAGE  BONDS  OF  CORPORATIONS. 

I.  Formalities  in  making  and  issuing  Bonds     .....  188-196 

II.  Negotiability  of  Corporate  Bonds 197-210 

III.  Incomplete  and  Altered  Bonds 211-216 

IV.  Remedies  upon  Corporate  Bonds 217-221 

CHAPTER  VII. 

MUNICIPAL   BONDS    IN   AID   OF    RAILROAD   AND   OTHER   CORPORATIONS. 

I.  Power  of  Municipalities  to  issue  Negotiable  Bonds  in  Aid  of  Pri- 
vate Corporations 222-230 

II.  Constitutional  and    Statutory  Provisions  respecting   Municipal 

Aid  to  Corporations 231-266 

HI.  Conditions  Precedent  to  granting  Municipal  Aid         .         .         .  267-277 
IV.  Ratification  of  Bonds  irregularly  issued,  and  Waiver  of  Condi- 
tions            278-282 

V.  Negotiability  of  Municipal  Securities 283-286 

VI.  Rights  of  bond  fide  Holders   of  Negotiable  Bonds  of  Munici- 
palities      •     .         .       287-299 

VII.  Enforcement  of  Municipal  Bonds 300-305 

CHAPTER  VIII. 

PROMISSORY  NOTES   AND   UNSECURED   BONDS    OF   CORPORATIONS. 

I.  Promissory  Notes  of  Corporations 306-311 

II.  Unsecured  Bonds  of  Corporations 312-316 

CHAPTER  IX. 

INTEREST   AND    INTEREST    COUPONS. 

I.  The  Contract  to  pay  Interest 317-320 

II.  Negotiability  of  Coupons 321-326 

III.  Order  of  Payment  of  Coupons 327-331 

IV.  Interest  on  Overdue  Coupons  and  Bonds 332-336 

V.  Suits  upon  Coupons 337-340 

X 


TABLE   OF   CONTENTS. 
CHAPTER  X. 

CONTRACTS  OF  GUARANTY  AND  INDORSEMENT. 

SECTION 

I.  Nature  of  the  Contracts  of  Guaranty  and  Indorsement       .         .  341-349 
II.  Corporations  cannot  enter  into  the  Contracts  without  Legislative 

Authority 350-356 

CHAPTER  XL 

THE    DUTIES   AND    RIGHTS   OF   MORTGAGE    TRUSTEES. 

I.  Nature  of  the  Trust  assumed  by  Mortgage  Trustees    .         .         .  357-362 

II.  Effect  of  Notice  to  Mortgage  Trustees 363,364 

III.  Rights  of  Mortgage  Trustees  in  Possession 365-370 

IV.  Removal  of  Trustees  and  filling  of  Vacancies  .         .         .       371-376 
V.  Statutory  Provisions   regulating  the  Duties  of   Mortgage  Trus- 
tees, and  the  choosing  of  New  Trustees            ....  377-382 

CHAPTER  XII. 

PAYMENT   AND   REDEMPTION. 

I.  Stipulation  for  Payment  in  Gold  or  Currency      ....  383,  384 

II.  Changes  in  Form  and  Amount  of  Debt 385-388 

HI.  Payment  of  Lost  Bonds 389 

IV.   Subrogation 390-394 

V.  Redemption 395-397 

CHAPTER  XIII. 

REMEDIES    AND    JURISDICTION    OF    COURTS    FOR   ENFORCEMENT   OF   CORPO- 
RATE   SECURITIES. 

I.  The  several  Remedies  to  enforce  Corporate  Securities  are  cumu- 

lative           398-405 

II.  Jurisdiction  of  State  and  Federal  Courts  of  Suits  against  Cor- 

porations              406-414 

III.  Effect  of  Consolidation  of  Railroad  Corporations  upon  the  Juris- 

diction of  Suits  against  them 415-420 

IV.  In   Cases  of   Concurrent  Jurisdiction,  the  Court  which  first  as- 

sumes Jurisdiction  retains  it  421,422 

V.  Sale  of  Franchise  or  Property  of  Railroad  Company  on  Execution  423-430 

CHAPTER  XIV. 

FORECLOSURE   PROCEEDINGS    DNDEB   COUPORATE   MORTGAGES. 
I.  Parties  Plaintiff 431-487 

II.  Parties  D-fcndant 438-448 

III.  Defences 449-451 

IV.  Decrees 452-455 

xi 


TABLE   OF   CONTENTS. 
CHAPTER  XV. 

THE    APPOINTMENT    AND   JURISDICTION    OF    RECEIVERS. 

SECTION" 

I.  Grounds  for  the  Appointment  of  Receivers  .         .         .         .         .  456-479 

II.  Selection  of  Receivers 480-482 

III.  Jurisdiction  of  Receivers 483-492 

CHAPTER  XVI. 

THE    RIGHTS    AND   LIABILITIES   OF    A   RECEIVER. 

I.  The  Title  and  Power  of  a  Receiver  in  general          .         .         .       493-498 
II.  A  Receiver  cannot  be  sued  without  leave  of  the  Court  appoint- 
ing him     499-508 

III.  A  Receiver's  Liability  to  Suit  for  the  Negligence  of  his  Employees  509-515 

IV.  The  Company  itself  is  not  liable  after  the  Receiver  has  assumed 

Control 516-520 

V.  Discharge  and  Removal  of  Receiver 521-526 

VI.  Compensation  and  Account  of  Receiver 527-530 

CHAPTER  XVII. 

RECEIVERS'   DEBTS    AND    CERTIFICATES. 

I.  For  what  Purposes  Receivers  may  be  authorized  to  incur  Debts 

and  issue  Certificates 533-538 

II.  Priority  of  Receivers'  Certificates 539-544 

III.  Negotiability  of  Receivers'  Certificates        .....  545,  546 

CHAPTER  XVIII. 

DEBTS    OF   MORTGAGE    TRUSTEES    IN    POSSESSION. 

I.  Right  of  Trustees  to  Repayment  of  their  Debts  and  Expenses  out 

of  the  Trust  Fund         ........       547-555 

II.  Liability  of  Trustees  operating  a  Railroad  as  Common  Carriers  .  556 

CHAPTER  XIX. 

THE     PRIORITY    OF     RAILROAD    MORTGAGES    NOT     AFFECTED     BY    EQUITIES 
ARISING     SUBSEQUENTLY. 

I.  Equities  of  Employees 557-561 

II.  Equities  of  Contractors  and  Material-men 562-565 

III.  Equities  Under  subsequent  Contracts  and  Leases      .         •         .  566-569 

IV.  Equities  under  Judgments  against  Receivers        ....  570-572 

xii 


TABLE   OF   CONTENTS. 
CHAPTER  XX. 

LIENS    AFFECTING    THE    PRIORITY   OF    RAILROAD   MORTGAGES. 

SECTION 

I.  Application  of  general  Lien  Laws  to  Railroads         .         .  .       573-578 

II.  Special  Lien  Laws  applicable  to  Railroads 579-582 

III.  Statutes  of  the  several  States  giving  Liens  upon  Railroads      .       583-610 

IV.  Vendor's  Lien  .        ■ 611 

V.  Transportation  Certificates 612 

VI.  Judgment  Lien 613 

9 

CHAPTER  XXI. 

SCHEMES    FOR  REORGANIZATION  AFFECTING   THE  PRIORITY  OF   MORTGAGES. 

I.  Rights  under  Agreement  for  Reorganization    ....       614-618 

II.  Rights  of  Preferred  Stockholders  as  against  Mortgagees      .         .619-624 

CHAPTER  XXII. 

FORECLOSURE    SALES    UNDER    CORPORATE   MORTGAGES. 

I.  Sale  of  entire  Property 625-628 

II.  Conduct  of  Sale 629-631 

III.  What  Franchises  pass  by  the  Sale 632-635 

IV.  Distribution  of  Proceeds  of  Sale 636-641 

V.  Setting  aside  of  Sale 642-652 

CHAPTER  XXIII. 

RIGHTS   OF   PURCHASERS  AT    FORECLOSURE    SALES  UNDER   RAILROAD  MORT- 
GAGES. 

I.  Purchasers  are  not  liable  for  the  Debts  of  the  Old  Company        .  653-660 

II.  Organization  of  Purchasers  into  a  New  Corporation         .         .       661-684 

CHAPTER  XXIV. 

PROCEEDINGS    IN    BANKRUPTCY   AND    INSOLVENCY  AGAINST    RAILROAD    COM- 
PANIES    685-694 

xiii 


TABLE   OF   CASES   CITED. 


Ackerson  v.  Lodi  Branch  R.  R.  Co.  28  N.  J.  Eq.  542      . 

Adams  v.  Boston,  Hartford  &  Erie  R.  R.  Co.  4  N.  B.  R.  314 

Agar  v.  Athenaeum  Life  Ins.  Co.  3   C.  B.  N.  S.  725 

Aggs  v.  Nicholson,  1  H.  &  N.   165 

Agra  &  Masterman's  Bank  in  re,  L.  R.  2  Ch.  391  . 

Ahern  v.  Evans,  66  111.  125 

Aiken  v.  Wasson,  24  N.  Y.  482 

Alabama  &  Chattanooga  R.  R.  Co.  v.  Jones,  5  N.  B.  R.  97 

v.  Jones,  7  N.  B.  R.  145 

Alden  v.  Boston,  Hartford  &  Erie  R.  R.  Co.  5  N.  B.  R.  230 

Alexander  v.  Atlantic,  Tenn.  &  Ohio  R.  R.  Co.  67  N.  C.  198 

v.  Central  R.  R.  of  Iowa,  3  Dill.  487  ;   1  Cent.  L.  J.  543 
v.  Com'rs  of  McDowell,  67  N.  C.  330 

Allen  v.  Central  R.  R.  Co.  42  Iowa,  683      . 

v.  Inhabitants  of  Jay,  60  Me.  124 223,  224 

v.  Montgomery  R.  R.  Co.  11  Ala.  437 6 

v.  Sea  Fire  &  Life  Ins.  Co.  9  C.  B.  574 192 

v.  Sullivan  R.  R.  Co.  32  N.  H.  446 189 

Aller  v.  Town  of  Cameron,  3  Dill.  198 277 

Alvis  v.  Whitney,  43  Ind.  83 239 

American  Bridge  Co.  v.  Heidelbach,  4  C.  L.  J.  367 ;  94  U.  S.  798  .         .114 

American  Central  Railway  Co.  v.  Miles,  52  111.  174    .         .         .         .         .  658 

Ames  v.  Birkenhead  Docks,  20  Beav.  342         ....       456,493,613 
v.  New  Orleans,  Mobile  &  Texas   R.  R.  Co.  2  Woods,  206         .         .  385 


.   435 

.  685 
191 
.  311 
197,  345 
.  589 
.   580 
.  685 
.   484 
.  487 
217 
.  433 
.   334 
482,  493,  507,  509,  512,  518 


New  Alexandria  &  Pittsburg  Turnpike  Co.  13  S.  &  R.  (Pa.) 


423 
691 
193 


Am  man  t 

210 
Anderson,  in  re,  7  Biss.  233  ....... 

Anderson  v.  Duke,  &c.  Gold  Mining  Co.  1  Australian  Jurist,  161 

v.  Jacksonville,  Pensacola  &  Mobile  R.  R.  Co.  2  Woods,  628 

448,  453,  611 

Andrews  v.  Michigan  Central  R.  R.  Co.  99  Mass.  534 406 

Anglo-Danubian  Stc;un  Nav.  &c.  Co.  in  re,  L.  R.  20  Eq.  339  .         .         .       318 

Anthony  v.  Jasper  County,  4  Dill.  136 296 

Applegate  v.  Ernst,  3  Bush  (Ky.),  648 429 

Arbucklc  v.  Illinois  Midland  Railway  Co.  81  111.  429  .         .         .         .419,589 
Arents  v.  Commonwealth,  18  Gratt.  (Va.)  750         .       317,  320,  322,  324,  325, 

332,  342,  345 

Arms  v.  Conant,  36  Vt.  744 84 

Arnot  v.  Erie  Railway  Co.  67  N.  Y.  315  ;  affirming  5  Hun,  608   .         .         .  356 
Arthur  v.  Commercial  ami  Railroad  Hank  of  Vicksburg,  9  S.  &  M.  (Miss.) 

894 2,  3,  15 

Ashhurst's  Appeal,  60  Pa.  St.  290 646,647 

Ashhursl  <-.  .Montour  Iron  Co.  .';.'»   Pa.  Si.  30 S99 

A-liton  v.  Corrigan,  L.  K.  13  Eq.  76   .        .        .        .        .        .        .        .74 

XV 


TABLE    OF   CASES    CITED. 

SECTION 

Ashuelot  R.  R.  Co.  v.  Elliot,  57  N.  H.  397  ;    S.  C.  52  N.  H.  387    .  332,   358, 

360,  396 

Aspinwall  v.  County  of  Daviess,  22  How.  364 270 

Atchison,  Topeka  &  Santa  Fe  R.  R.    Co.  v.    Commissioners  of  Jefferson 

County,  12  Kans.  127  ;  17  lb.  29 278,302 

Atchison,  Topeka  &  Santa  Fe  R.  R.  Co.  v.  Cuthbert,  14  Kans.  212         .       592 

Athenaeum  Life  Assurance  Soc.  in  re,  4  K.  &  J.  549 194 

Athenaeum  Life  Assurance  Soc.  v.  Pooley,  3  De  G.  &  J.  294  .  .  197,  201 
Atkinson  v.  Marietta  &  Cincinnati  R.  R.  Co.  15  Ohio  St.  21        .  .        3,  653 

Atlantic  &  Gulf  R.  R.  Co.  v.  Allen,  15  Fla.  637 660 

Atlantic,  Mississippi  &  Ohio  R.  R.  Co.  in  re,  26  Financial  Chronicle,  444  .  568 
Au<uista  Bank  v.  Augusta,  49  Me.  507     .......        227 

Aurora  City  v.  West,  7  Wall.  82 198,320,332 

Australian 'Auxiliary  Clipper   Co.  v.  Mounsey,  4  K.  &  J.  733;  27  L.  J. 

(Ch.)  729 5,  19 

Avery  v.  Blees  Manufacturing  Co.  27  N.  J.  Eq.  412         ....       465 

Bagley  v.  Atlantic,  Miss.  &  Ohio  R.  R.  Co.  5  Weekly  Notes,  263;  5   Re- 
porter, 661 491 

Bagnalstown  v.  Wexford  Ry.  Co.  L.  R.  4  Eq.  505 21 

Ba?shaw  v.  Eastern  Union  Ry.  Co.  7  Hare,  114  ;  2  Mac.  &  G.  389  .  1 

Bafleyr.  Town  of  Lansing,  13  Blatchf.  424 290 

Balch  v.  N.  Y.  &  Oswego  Midland  R.  R.  Co.  46  N.  Y.  521    .         .         .       580 

Balfour  v.  Ernest,  5  C.  B.  N.  S.  601 310 

Ballou  v.  Farnum,  9  Allen  (Mass.),  47 511 

Bank  of  Augustas.  Earle,  13  Pet.  519 406 

Bank  of  Australasia  v.  Breillat,  6  Moo.  P.  C.  152 5 

Bank  of  Chillicothe  v.  Mayor  of  Chillicothe,  7  Ohio,  354  .  .  .  .  283 
Bank  of  Genesee  v.  Patchin  Bank,  13  N.  Y.  309  .         .         .         .         308,350 

Bank  of  Middlebury  v.  Edgerton,  30  Vt.  182 16 

v.  Rutland  &  Washington  R.  R.  Co.  30  Vt.  159         .     84 
Bank  of  Montreal  v.  Chicago,   Clinton  &  Western  R.    R.  7  Cent.  L.  J. 

267;  6  Reporter,  616 535,545 

Bank  of  Rome  v.  Village  of  Rome,  18  N.  Y.  38;  28  N.  Y.  605         .         .  229 

Bank  of  U.  S.  v.  Dandridge,  12  Wheat.  64 193 

Bardstown  &  Louisville  R.  R.  Co.  v.  Metcalfe,  4  Mete.  (Ky.)  199      .     17,  628 

Bargate  v.  Shortridge,  5  H.  L.  297 192 

Barker  v.  Mechanic  Fire  Ins.  Co.  of  N.  Y.  3  Wend.  (N.  Y.)  94         .         .  306 

Barnard  v.  Campbell,  55  N.  Y.  456 279 

v.  Norwich  &  Worcester  R.  R.  Co.  14  N.  B.  R.  469;  3  Cent.  L. 

J.  608 122,  136 

Barnes  v.  Mobile  &  North  Western  R.  R.  Co.  5  N.  Y.  Weekly  Dig.  191    .  406 

v.  Ontario  Bank,  19  N.  Y.  152 5 

v.  Town  of  Lacon,  84  111.  461 226,  230,  278,  293 

Barratt  v.  County  Court  of  Schuyler  County,  44  Mo.  197  .         .         .         .  280 

Barter  v.  Wheeler,  49  N.  H.  9 511,  556 

Barton  v.  Barbour,  6  Wash.  L.  R.  41  ;  6  Cent.  L.  J.  201  ...  500 

Barton  County  v.  AValser,  47  Mo.  189 278 

Bateman  v.  Mid-Wales  Rv.  Co.  L.  R.  1  C.  P.  499  .  .  .  .  306,  307 
Bates  v.  Boston  &  N.  Y.  Cent.   R.  R.  Co.  10  Allen  (Mass.),  251   .         .       189 

Bath  v.  Miller,  51  Me.  341 ;  53  Me.  308 115,140 

Bath  County  v.  Amy,  13  Wall.  244 300 

Bay  City  v.  State  Treasurer,   23  Mich.  499 229 

Bayley  v.  Taber,  5  Mass.  286 296 

Beadleson  v.  Knapp,  13  Abb.  (N.  Y.)  Pr.  N.  S.  335         .         .         .         .373 

Beall  i\  White,  94  U.  S.  382 74 

Beardsleyy.  Ontario  Bank,  31  Barb.  (N.  Y.)  619 165 

v.  Smith,  16  Conn.  368 305 

Beckwith  v.  English,  51  111.  147 300 

xv  i 


TABLE   OF    CASES   CITED. 


Beckwitli  v.  Hartford,  Providence  &  Fishkill  R.  R.  29  Conn.  268 

Beers  v.  Phoenix  Glass  Co.  18  Barb.  (N.  Y.)  358        .         . 

Bell  v.  Indianapolis,  Cincinnati  &  Lafayette  R.  R.  Co.  53  Ind.  57 

v.  Railroad  Co.  4  Wall.  598 

v.  Shibley,  33  Barb.  (N.  Y.)  610 

Belmont  v.  Erie  Rv.  Co.  52  Barb.  (N.  Y.)  637  . 
Belo  v.  Com'rs  of  Forsvthe  County,  76  N.  C.  489 


SECTION 

336 
.       5 
516 
.  227 
494 
.     97 
207,268,  278,288,  291, 
292, 293 
Bement  v.  Pittsburgh  &  Montreal  R.  R.  Co.  47  Barb.  (N.  Y.)  104  .         .  165 

Benbow  v.  Iowa  City,  7  Wall.  313 300 

Benedict  v.  Danbury  &  Norwalk  R.  R.  Co.  24  Conn.  320  .         .         .         .  586 
Benjamin  v.  Ehnira,  Jefferson  &  Canandaigua  R.   R.   Co.  54  N.  Y.   675; 

49  Barb.  (N.  Y.)  441 145,171,196 

Berry  v.  Brett,  6  Bosw.  (N.  Y.)  827 494 

Bickford  v.  Grand  Junction  Ry.  Co.  1   Supreme  Ct.  of  Canada,  696  .        9,  10, 

12,  18 
Bill  v.  New  Albany,  &c.  Rv.  Co.  2  Biss.  390  .  119,  421,  422,  460,  484,  485 

Birdsall  v.  Russell,  29  N.  Y.  220 216 

Birmingham  Banking  Co.  ex  parte,  L.  R.  6  Ch.  App.  83  5 

Bissell  v.  City  of  Jefferson ville,  24  How.  287     .         .         .         .     280,  291,  293 

v.  Mich.  South.  &  North.  Ind.  R.  R.  Co.'s  22  N.  Y.  258        23,  107,  308 

.  288 

2 

.  198 

226,  230 

.  318 

197,  345 

.  580 

428 

.  108 

.       223 

455,  635 

.  629 


Black  v.  Cohen,  52  Ga.  621 

v.  Del.  &  Raritan  Canal  Co.  22  N.  J.  Eq.  130;  24  lb.  455    . 
Blake  v.  Livingston  County,  61  Barb.  (N.  Y.)  149    . 

v.  Mayor,  &c.  of  Ma'con,  53  Ga.  172 

Blakely  Ordnance  Co.  in  re,  8  Eq.  244 

L.  R.  3  Ch.  154  .... 

Blakey  v.  Blakey,  27  Mo.  39 

Blanchard  v.  Cawthorne,  4  Sim.  566 

Bloomer  v.  Union  Coal  &  Iron  Co.  L.  R.  16  Eq.  383    . 

Bloomfield,  &c.  Gas  Light  Co.  v.  Richardson,  63  Barb.  (N.  Y.)  437 

Blossom  v.  Milwaukee,  &c.  R.  R.  Co.  1  Wall.  655 

v.  Railroad  Co.  3  Wall.  196 

Blumcnthal  v.  Brainerd,  38  Vt.  402  ....         501,509,510,512 

Board  of  Supervisors  of  Iowa  Co.  v.  Mineral  Point  R.  R.  Co.  24  Wis.  93 


Bonham  v.  Board  of  Education  of  Harrisonville,  4  Hill.  156 

Bonner  v.  City  of  New  Orleans,  2  Woods,  135    . 

Bonnifield  v.  Bidwell,  32  Iowa,  149  ... 

Booth  v.  Clark,  17  How.  322         .... 

Borough  of  North  Lebanon  v.  Arnold,  4  7  Pa.  St.  489       . 

Boskm,  Concord  &  Montreal  R.  R.  Co.  v.  Gilmore,  37  N.  H.  410. 

Boston,  Hartford  &  Erie  R.  R.  Co.  in  re,  9  Blatchf.  101 

Botsford  v.  N.  II.,  Middletovvn  &  Willimantic  R.  R.  Co.  41  Conn.  454 


72,  314,  456 


Bound  v.  Wisconsin  Cent.  R.  R.  Co.  6  Reporter,  704 

Bowen  v.  Brecon  Ry.  Co.  L.  R.  3  Eq.  541 

Boyd  v.  Chesapeake  &  Ohio  Canal  Co.  17  Md.  195      . 

v.  Kennedy,  38  N.  J.  L.  146 

Bradlee  v.  Boston  Glass  .Manufactory,  16  Pick.  (Mass.)  347 
Bradley  v.  Ballard,  :>:>  111.  413;  8  Am.  R.  656  . 

r.  Chester  Valley  R.  R.  Co.  36  Pa.  St.  141     . 
Brainerd  v.  N.  Y.  &  Harlem  It.  It.  Co.  25  N.  Y.496;  10  Bosw.  332 

v.  Peck,  34  Vt.  496 

B     i  ih  v.  Roberts,  3  Bing.  N\  C.  963 

Branch  v.  City  of  Charleston,  92  U.  S.  677. 

v.  Macon  &  Brunswick  \l.  \l.  Co.  2  Woods,  385  . 
:i  v.  Conn.  &  Passumpsic  Rivera  R.  It-  Co.  8]  Vt.  214 
Brannon  v.  Hursell,  L12  Mass.  <)•'!     ....•• 

Brett  c  Carter,  2  Lowell,  1.r>S 

b  \\\  i 


277 

.  348 

240 

483,  495 

227 

125,  168 

.       688 

573, 

586 

.  266 

477,  504 

.  424 

284,  285 

.  311 

.  5,  309 

.  399 

198,  285 

138,   13  7 

.       306 

.   272 

898 

.  608 

336 

.  122 


TABLE   OF   CASES   CITED. 


SECTION 

Brewster  v.  Wakefield,  22  How.  118 336 

Bridgeport  v.  Housatonic  R.  R.  Co.  15  Conn.  475 227 

Bridgeport  City  Bank  v.  Empire  Stone  Dressing  Co.  30  Barb.  (N.  Y.) 

421    . 308,  350 


Brill  v.  West  End  P.  Ry.  Co.  4  W.  Notes  of  Cases  139  . 

Brine  v.  Insurance  Co.  96  U.  S.  627    ...... 

Brinley  v.  Mann,  2  Cush.  (Mass.)  337 

Bristol  &  North  Somersel  Ry.  Co.  in  re,  L.  R.  6  Eq.  448     . 
British  Provident  Life  &  Fire  Ass.  Co.  in  re,  4  De  G.,  J.  &  S.  407 
Bronenberg  v.  Madison  County,  41  Ind.  502        .... 
Bronson  v.  La  Crosse  &  Milwaukee  R.  R.  Co.  2  Wall.  238  . 


160 

.  395 

86 

.  614 

103 

.  239 

208,  391, 


442,  445,  450,  451 

r.  Railroad  Co.  2  Black,  524 444 

Brouchton  v.  Manchester  W.  Works  Co.  3  B.  &  A.  1  .  .  .         .  306 

Brown  v.  Mayor,  &c.  of  London,  9  C.  B.  (N.  S.)  726       ...         .       557 

».  Mayor,  &c  of  New  York,  63  N.  Y  239 2  78 

v.  N.  Y.  &  Erie  R.  R.  Co.  22  How.  (N.  Y.)  Pr.  451  .  .  .  327 
Bruffet  v.  Great  Western  R.  R.  Co.  25  111.  353  .  .  .  .  418,  653,  659 
Brunswick  &  Albany  R.  R.  Co.  v.  Hughes,  52  Ga.  557    .         .         .         .  79 

Buck  v.  Colbath,  3  Wall.  334 485 

v.  Memphis  &  Little  Rock  R.  R.  Co.  4  C.  L.  J.  430         .         104,  118,  162 

Buckley  v.  Briggs,  30  Mo.  452 353 

Bunting  v.  Camden  &  Atlantic  R.  R.  Co.  81  Pa.  St.  254;  15 Am.  R.  R.  5  70 

198,  206 

Burlingame  v.  Parce,  12  Hun  (N.  Y.),  144 459 

Burlington  &  Cedar  Rapids  Northern  R.  R.  Co.  7  Cen.  L.  J.  65         .  .  591 

Burmester  v.  Norris,  6  Ex.  796 306 

Burroughs  v.  Com'rs  of  Richmond  County,  65  N.  C.  234    .         .         .         .  332 

Butler  v.  Dunham,  27  111.  474 227,280 

v.  Edgerton,  15  Ind.  15.         .         .         .         .         .  .         .         .319 

v.  Horwitz,  7  Wall.  258 383 

v.  Myer,  17  Ind.  77 319 

v.  Rahm,  46  Md.  541     .         .         .         .8,  68,  84,  93,  94,  122,  402,  613 

Butterfield  v.  Usher,  91  U.  S.  246 635 

Byron  v.  Metropolitan  Saloon  Omnibus  Co.  8  De  G.  &  J.  123         .         .         19 

Ca<nll  v.  Wollbridge  (Tenn.),  4  Cent.  L.  J.  6 483 

Cairo  &  St.  Louis  R.  R.  Co.  v.  Cauble,  85  111.  555 589 

v.  City  of  Sparta,  77  111.  505  .  .     267,  278 

v.  Watson,  85  111.  531;  11  Chicago  Leg.  News, 


141;  5  Reporter,   261 
Cairo  &  Vincennes  R.  R.  Co.  v.  Fackney,  78  111.  116 

California  v.  Wells,  15  Cal.  336 

California  Northern  R.  R.  Co.  v.  Butte  County,  18  Cal.  671 
California  Pacific  11.  R.  Co.  in  re,  3  Sawyer,  240 
Cambrian  Ry.  Co.'s  Scheme  in  re,  L.  R.  3  Ch.  278 
Can.],  v.  Barney,  4  Hun  (N.  Y.),  373  .... 

Campbell  v.  City  of  Kenosha,  5  Wall.  194        . 

v.  Railroad  Co.  1  Woods,  368        .... 
v.  Texas  &  New  Orleans  R.  R.  Co.  2  Woods,  263 

Cardot  v.  Barney,  63  N.  Y.  281 

Carpenter  v.  Black  Hawk  Gold  Mining  Co.  65  N.  Y.  43 

v.  Catlin,  44  Barb.  (N.  Y.)  75 

v.  Longan,  16  Wall.  271 

v.  Rommel,  5  Phila.  (Pa.)  34  ... 

Carr  v.  Le  Fevre,  27  Pa.  St.  413 

Carter  v.  City  of  Dubuque,  35  Iowa,  416 

Case  of  the  State  Tax  on  Foreign  held  Bonds,  15  Wall.  300 

Case  v.  Marchand,  23  La.  Ann.  60 

xviii 


589 
401,  582 
.  207 
273,  276 
685,  686,  687 
.   614 
510,  513 
.   278 
361,  432,  434,  438 
95,  135,  447,  627 
511,  512,  513 
3,  8,  611 
.   616 
.  449 
207 
.  198 
.   222 
.  221 
.   495 


TABLE    OF    CASES   CITED. 


SECTION 

Cass  v.  Dillon,  2  Ohio  St.  607 231 

Caylus  v.  N.  Y.,  Kingston  &  Syracuse  R.  R.  Co.  10  Hun  (N.  Y.),  295    .       203 

Cet'n  Cilcen  Mining  Co.  in  re,  L.  R.  7  Eq.  88 307 

Central  Bank  v.  Empire  Stone  Dressing  Co.  26  Barb.  (N.  Y.)  23  .  308,  350 
Central  Gold  Mining  Co.  v.  Piatt,  3  Daly  (N.  Y.),  263        .         .         .         .8 

Central  Mills  Co.  v.  Hart,  124  Mass.  123 555 

Central  Nat,  Bank  of  Worcester  v.  Worcester  Horse  R.  R.  Co.  13  Allen 

(Mass.),  105 686 

Central  Railroad  &  Banking  Co.  v.  Georgia,  92  U.  S.  665       .         .         .       416 

Central  R.  R.  Co.  v.  Collins,  40  Geo.  582 350 

Chamberlain  v.  City  of  Burlington,  14  Iowa,  395 240 

v.  St.  Paul  &  Sioux  City  R.  R.  Co.  92  U.  S.  299     .         .         .  394 
Chambers  v.  Manchester   &  Milford   R.   R.   Co.  5   B.  &  S.  588  ;  33   L.  J. 

(Q.  B.)  268;   1  Cox's  Joint  Stock  Cas.  78 21 

Chambers  County  v.  Clews,  21  Wall.  317         ....        268,291,299 

Chandler  v.  Siddle,  3  Dill.  477 491 

Chapin  v.  Vt.  &  Mass.  R.  R.  Co.  8  Gray  (Mass.),  575      .         .         .       198,  204 

Chartiers  Ry.  Co.  v.  Hoddens,  85  Pa.  St.  501 654 

Chase  v.  Yanderbilt,  62  N.  Y.  307 418,  419 

Chautauqua  County  Bank  v.  Risley,  19  N.  Y.  369  .  .  .  .  493,  501 
Cheever  v.  Rutland   &  Burlington  R.  R.  Co.  39  Vt.  653,  4  Am.  Railw.  R. 

300 459 

Chesapeake  &  Ohio  Canal  Co.  v.  Blair,  45  Md.  102  .  .  219,  320,  3S9 
Chester  &  Lenoir  R  R.  Co.  v.  Caldwell  County,  72  N.  C.  486  .  .  .  268 
Chicago  &  North  Western   Ry.  Co.   v.  Borough  of  Ft.  Howard,  21   Wis. 

44  ° 186 

Chicago,    Burlington   &  Quincy  R.    R.  Co.  v.  County  of  Otoe,   2  Neb. 

496 227 

Chicago,  Milwaukee  &  St.  Paul  R.  R.  Co.  v.  Pfaender,  23  Minn.  21  7  .  660 
Chicago,  Rock  Island  &  Pacific  R.  R.  Co.  v.  City  of  Joliet,  79  111.  25         .  227 

v.  Kennedy,  70  111.  350  .         .       651 

Chicopee  Bank  v.  Chapin,  8  Met   (Mass.)  40 208 

Chilton  v.  People,  66  111.  501 189 

Chittenden  v.  Brewster,  2  Wall.  191 485 

Cincinnati  City  v.  Morgan,  3  Wall.  275 79 

Cincinnati,  Sandusky  &  Cleveland   R.  R.  Co.  v.  Sloan,  31   Ohio  St.  1;  15 

Am.  Railw.  R.  376 455,  458,  459,  476 

Cincinnati,  Wilmington  &  Zanesville  R.  R.  Co.  v.  Clinton  County,  1  Ohio 

St.  77 

Citizens'  Savings  Association  of  Cleveland  v.  Topeka,  3  Dill.  376 

City  v.  Lamson,  9  Wall.  477 

City  of   Atchison  v.  Butcher,  3  Kans.  104 

City  of   Atlanta  v.  Grant,  57  Ga.  340  .... 

City  of  Aurora  v.  West,  9  Ind.  74;  22  lb.'  88 

City  of  Bath  v.  Miller,  53  Me.  308  :  S.  C  51  Me.  341 

Citv  of  Dubuque  v.  Illinois  Cent.  R.  R.  Co.  39  Iowa,  56  ;  8  A 

496 

City  of  Elizabeth  v.  Force,  29  N.  J.  Eq.  587       . 

City  of  Galena  v.  Amy,  5  Wall.  705 

v.  Corwith,  is  111.  423  .... 

Cityof    Kenosha  V.  Lamson,  9  Wall.  477  .... 

City  of  Kokomo  '•.  State,  '■>">  1ml.  152  .... 

City  of  Lexington  v.  Butler,  14  Wall.  282       ...         29 

City  of  Memphis  /•.  Adams,  9  Heisk.  (Tenn.)  518 

City  of  Mount  Vernon  v.  Hovey,  52  tnd.  503 

of  l:  »chester  v.  Bronson,  ii  How.  (N.  Y.)  Pr.  78 

Cityof  Sacramento  v.  Kirk,  7  Cal.  419  ..... 

City  of  S.m  Antonio  v.  Lane,  32  Tex.  405 

City  of  St.  Louis  v.  Alexander,  23  Mo.  485     .... 

xix 


227,  257,  302 

.   224 

268,  337,  340 

298 

.  429 

227 

140 


223 

.    115, 

i.  Ry.  R. 

171,  176, 
.    198, 


268,  337, 
1,  308,  320, 
239,  272, 


300 
216 
300 
283 
340 
239 
340 

IS!) 

284 

w;r> 

271 

227 
227 


TABLE   OF   CASES    CITED. 

SECTION 

City  of  Vicksburg  w.  Lombard,  51  Miss.  Ill    ....       248,283,291 
City  of  Williamsporl  v.  Commonwealth,  84  Pa.  St.  487     .        .         .        .  283 

Clapp  V.  Countv  of   Cnlar,  5  Iowa,  15 240 

Clark  v.  City  of  Des  Moines,  19  Iowa,  199 283 

v.  City  of  Rochester,  13  How.  Pr.  204;  24  Barb.  446    .        .        .       229 
r.  Farmers'  Woollen  Manuf.  Co.  15  Wend.  (N.  Y.)  256  .         .         .306 

v.  Iowa  City,  20  Wall.  583 198,320,340 

v.  Janesville,  10  Wis.  136 231 

v.  Titcomb,  42  Barb.  (N.  Y.)  122 5 

Clarke  v.  City  of  Janesville,  1  Biss.  98 198,320 

Ch.v  v.  Cast  Tennessee  &  Va.  R.  R.  Co.  6  Heisk.  (Term.)  421       .        .117 

v.  Nicholas  County  Court,  4  Bush  (Ky.),  154 226 

Clearwater  v.  Meredith,  l  Wall.  25 416 

Cleveland  &  Pittsburg  R.  R.  Co.  v.  Speer,  56  Pa.  St.  325  .         .         .         .  406 
Clews  v.  Brunswick  &  Albany  R.  R.  Co.  54  Ga.  315       ...         .       392 

Coal  Co.  v.  Blatchford,  11  Wall.  172 432 

Coddington  v.  Gilbert,  17  N.  Y.  489 406 

Coe  v.  Columbus,  Piqua  &  Iud.  R.  R.  Co.  10  Ohio  St.  372  4,  15,  75,  16  7, 

318,  424,  431,  504 
v.  Knox  County  Bank  of  Mount  Vernon,  10  Ohio  St.  412  .         .         .  424 

v.  McBrown,  22  Ind.  252 113 

v.  N.   J.   Midland  Ry.  Co.  27  N.  J.  Eq.  37;  28  lb.  27;   S.  C.  lb.  31; 

14  Am.  Ry.  Rep.  9 402,  498,  525,  538 

v.  Peacock,  14  Ohio  St.  187 401,  424,  425 

v.  Pennock,  6  Am.  Law  Reg.  27  ;  2  Redf.  Am.  Ry.  Cases,  667        .       148 

Coffin  v.  Reynolds,  37  N.  Y.  640 580 

Coleman  v.  Board  of  Supervisors  of  County  of  Marion,  50  Cal.  593       .       234, 

273,  277 

Collins  v  Central  Bank  of  Ga.  1  Kelly  (Ga.),  435 79 

Colman  v.  Eastern  Ry.  Co.  10  Beav.  1 350 

Colonial  Bank  of  Australasia  v.  Willan,  L.  R.  5  P.  C.  417         .         .         .191 
Columbus,  Chicago  &  Ind.  Cent.  Ry.  Co.  v.  Powell,  40  Ind.  37        .         .418 

v.  Skidmore,  69  111.  566         .  418,  419 
Commercial  Bank  of  Canada  v.  Great  Western  Ry.  Co.  of  Canada,  3  Moo. 

P.  C  C.  (N.  S.)  295 313 

Commercial  National  Bank  of  Cleveland  v.  City  of  Iola,  2  Dill.  353       223,  224 
Commissioners  of  Craven  v.  Atlantic  &  N.  C.  R.  R.  Co.  77  N.  C.  289 

312,  318,  319 
Commissioners  of  Dodge  County  v.  Chandler,  5  Reporter,  227  .  .  225 
Commissioners  of  Douglas  County  v.  Bolles,  94  U.  S.  104  277,  288,  291,  292 
Commissioners  of  Johnson  County  v.  January,  94  U.  S.  202  .         282,  292,  293 

v.  Thayer,  93  U.  S.  56  7;   94  U.  S.  631 

273,  288,  364 
Commissioners  of  Knox  County  v.  Nichols,  14  Ohio  St.  260  .  .  .  292 
Commissioners  of  Marion  County  v.  Clark,  94  U.  S.  278  .  .  .  284,  291 
Commissioners  of  Roads,  &c.  v.  Shorter,  50  Ga.  489  ....  276 
Commonwealth  v.  Central  Passenger  Ry.  52  Pa.  St.  506  .  .  .  520,  654 
v.  Chesapeake  &  Ohio  R.  R.  Co.  27  Gratt.  (Va.)  344  221 

v.  Emigrant  Industrial  Savings  Bank,  98  Mass.  12      .         .   216 

v.  Perkins,  43  Pa.  St.  400 227 

v.  Pittsburg,  41  Pa.  St.  278;  43  lb.  391        .         .    227,230,279 

v.  Smith,  10  Allen  (Mass.),  448       .  .  .         .3,  45,  312 

v.  Tenth  Mass.  Turnpike  Co.  5  Cush.  (Mass.)  509     .         .  653 

Compagnie  Gene'rale  de  Bellegarde  in  re,  L.  R.  4  Ch.  D.  470  .         .       644 

Conklin  v.  Butler,  4  Biss.  22 487 

Connecticut  Mut.  Life  Ins.  Co.  v.  Cleveland,  Columbus  &   Cincinnati  R. 
R.  Co.  41  Barb.  (N.  Y.)  9  ;  26  How.  Pr.  225  .  190,  198,  311,  332,  343, 

350,  356 
Consolidated  Ass'n  v.  Numa  Avegno,  28  La.  Ann.  552    .         .         .         .207 
XX 


TABLE    OF    CASES   CITED. 

SECTION 

Converse  v.  City  of  Fort  Seott,  92  U.  S.  503 279,  288 

Cook  v.  Corthell,  11  R.  I.  482 122 

v.  Wood,  L.  R.  7  H.  L.  27 .         .336 

Cooper  v.  Sullivan  County,  65  Mo.  542 279 

V.  Town  of  Thompson,  13  Blatchf.  434  .  .  .     278,  320,  326,  337 

Coopers  i'.  Wolf,  15  Ohio  St.  523 91,  112,  123 

Corcoran  v.  Chesapeake  &  Ohio  Canal  Co.  94  U.  S.  741;  1  Me  Arthur  (D. 

C),  358 332,  339,  438,  447 

Corey  v.  Long,  12  Abb.  (N.  Y.)  Pr.  N.  S.  427 528 

Cork  &  Youghal  Ry.  Co.  in  re,  L.-R.  4  Ch.  App.  748      .         .         .  21,  218 

Corrugi  v.  Atlantic" Fire  Ins.  Co.  40  Ga.  135;  2  Am.  R.  567        ..         .  193 
Corry  v.  Londonderry  &  Enniskillen  Rv.  Co.  29  Beav.  263;   7  Jur.  N.  S. 

508;  30  L.J.  Ch.  290 620,621 

599 
225 
236 
223 
193 
284 
272 
198,  332 


Cosgrove  v.  Tebo  &  Neosho  R.  R.  Co.  54  Mo.  495 

County  Commissioners  v.  Chandler,  96  [J.  S.  205 

County  Commissioners  of  Columbia  Count}-?;.  King,  13  Fla.  451 

County  Court  of   St.  Louis  County  v.  Griswold,  58  Mo.  175    . 

County  Life  Ass.  Co.  in  re,  L.  R.  5  Ch.  288         .... 

County  of  Armstrong  v.  Brinton,  47  Pa.  St.  36  7      . 

County  of  Bates  v.  Winters,  17  Albany  L.  J.  291 

County  of  Beaver  v.  Armstrong,  44  Pa.  St.  63 

County  of  Callaway  v.  Foster,  93  U.  S.  567;  3  Dill.  200     .  .     272,  273,  274 

County  of  Cass  v.  Johnston,  95  U.  S.  360         ..         .        249,  269,  273,  302 

v.  Jordan,  95  U.  S.  373 249,  273 

v.  Shores,  95  U.  S.  375 291,  302 

County  of  Henry  r.  Nicolay,  95  U.  S.  619 272,  274,  291 

County  of  Leavenworth  v.  Barnes,  94  U.  S.  70  .  .  .  .  277,  292 
County  of  Macon  v.  Shores,  17  Alb.  L.  J.  35  .  .  .  .  207,  277,  288 
County  of  Moultrie  v.  Rockingham  Ten   Cent   Savings   Bank,   92    U.   S. 

631 271,  276,  279,  293 

County  of  Randolph  v.  Post,  93  U.  S.  502 277,279 

County  of  Ray  v.  Vansycle,  96  U.  S.  675 274,282 

County  of  Richland  v.  People,  Chicago  Legal  News,  43,  for  October   26, 

1878 278 

County  of  Scotland  v.  Thomas,  94  U.  S.  682;  S.  C.  3  Dill.  7  .  .  2  72,  2  74 
Covey  v.  Pittsburg,  Fort  Wayne  &  Chicago  R.  R.  Co.  3  Phila.  (Pa.)  173 

122,  123,  159,  425 
Covington  Drawbridge  Co.  v.  Shepherd,  21  How.  112  .  .  .  428,  457 
Cowdrev  ».  Galveston,  Houston  &  Henderson  R.  R.  Co.  93  U.  S.  352; 

S.  C  9  Am.  Railw.  R.  361 498,  551,  571 

v.  Railroad  Co.  1  Woods,  331        .         .      480,  498,  527,  528,  529,  535 

Cowlesv.  Mercer  County,  7  Wall.  118 410 

Cozart  v.  Georgia  R.  It.  &  Bunking  Co.  54  Ga.  379 356 

Craig  v.  City   of  Vicksburg,  31   Miss.  216 198 

Crawford  v.  North  Eastern   Railway  Co.  3  Jurist  N.  S.  1093  ;  3  Kay  &  J. 

723 620 

Crawford  Countv  v.  Louisville,  New  Albany  &  St.  Louis  Air  Line  Railway 

Co.  39  Ind.  192 239,  270 

Crawshay  v.  Soutter,  6  Wall.  737 647 

Cromwell  v.  County  of  Sac,  96  U.  S.  51  .     199,  208,  284,  319,  332,  336 

v.  County  of  Sac,  94    IT.  S.  351 291 

e  v.  Daviess  County,  36  Ind.  320 •       .        .  239 

Crosby  v.  New  London,  &c.  R.  li.  Co.  26  Conn.  121  .  .  .  323,338 
Croucb  v.  Credit  Foncier  of  England,  L.  R.  8  CJ.  B.  374      .  ,      .    205,  206,  328 

Curran  v.  Arkansas,  15  Eow.  304 

Curtis  v.  Le  i\  Lit,  15  X.  V.  9 ,r>,  364 

v.  Mcllhenny,  5  Jones  (N.  C.)  Eq.  200 495 

v.  Whipple,  24  Wis.  350 22  1 

Cutts  v.  Brainerd,  42  Vt.  566 510 

\\i 


TABLE   OF   CASES   CITED. 


Dana  v.  Bank  of  U.  S.  5  W.  &  S.  (Pa.)  223      .... 

Daniels  v.  Hart,  118  Mass.  543 

Darby  v.  Wright,  3  Blatchf.  170 

Darlington  v.  La  Clede  County,  4  Dill.  200 

Davenport  v.  Alabama  &  Chattanooga  R.  R.  Co.  2  Woods,  519 

v.  Miss.  &Mo.  R.  R.  Co.  12  Jowa,539 
Davidson  v.  Ramsey   County,  18  Minn.  482     .... 
Daviess  County  Courl  v.  Howard,  13  Bush  (Ky.),  101    -     . 

Davis  r.  Gray,  16  Wall.  203 

v.  Railroad  Co.  1  Woods,  GG1 

De  Graff  v.  St.  Paul  &  Pacific  R.  R.  Co.  5  Reporter,  561 

De  Graffenried  v.  Brunswick  &  Albany  R.  R.  Co.  57  Ga.  22 

Delaware   Construction   Co.  v.  Davenport  &  St.  Paul  Ry.   Co.  46  Iowa, 


40G 


Delaware  County  v.  McClintock,  51   Ind.  325      . 
Delaware,  Lackawanna  &  Western  R.  R.  Co.  v.  Erie  Ry.  Co.  21  N 
298  •         •         •         •         •         •         •         •         •         • 

Delaware  Railroad  Tax  in  re,  18  Wall.  206  ... 

Denniston  v.  Chicago,  Alton  &  St.  Louis  R.  R.  Co.  4  Biss.  414 
Denny  v.  Cleveland  &  Pittsburg  R.  R.  Co.  28  Ohio  St.  108 
Des  Moines  Gas  Co.  V.  West,  44  Iowa,  23        ...         . 

Despatch  Line  of  Packets  v.  Bellamy  Manuf.  Co.  12  N.  H.  205 
Devon  &  Somerset  Ry.  Co.  in  re  L.  R.  6  Eq.  610  ;  lb.  615      . 
De  Yoss  v.  City  of  Richmond,  18  Gratt.  (Va.)  338     . 
De  Winton  v.  Mayor,  &c.  of  Brecon,  27  Beav.  533 
Diamond  v.  Lawrence  County,  37  Pa.  St.  353     . 

Dickinson  v.  Valpy,  10  B.  &"C.  128 

Dillon  v.  Barnard,  1  Holmes,  386 

DiiiMiiore  v.  Duncan,  57  N.  Y.  573  ...... 

v.  Racine  &  Mississippi  R.  R.  Co.  12  Wis.  649     106,  124,  126,  132,  133 

Doe  v.  St.  Helen's,  &c.  Ry.  Co   2  Q.  B.  364 456 

Douglass  v.  Cline,  12  Bush  (Ky.),  608 161,509,558 

Dow  v.  Humbert,  91  U.  S.  294 304 

Drury  v.  Cross,  7  Wall.  299 648 

Dubuque  County  v.  Dubuque  &  Pacific  R.  R.  Co.  4  Greene  (Iowa),  1        .  240 
Duncan  r.  Chesapeake  &  Ohio  R.  R.  Co.  9  Am.  Railw.  R.  386       .  .       559 


SECTION 

313 

3,  370 

82 

294,  295 

515,  570 

.   221 

227 

.  298 

439,  457 

687,  691 

.        118 

.  500 


591 
226,  230 
Eq. 

459,  496 

.  415 

564,  568 

.      97,  220 

474,  476 

85,  86 

614 

.    290,  294 

456 

98,  208,  284 

306 

.      77,  122 

198 


v.  Mobile  &  Ohio  R.  R.  Co.  2  Woods,  542 
Dunham  v.  Cincinnati,  Peru,  &c.  Ry.  Co.  1  Wall.  254 

v.  Isett,  15  Iowa,  284 

Dunlop  v.  Paterson  Fire  Ins.  Co.  12  Hun  (N.  Y.),  627  . 
Dunn  v.  Commercial  Bank  of  Buffalo,  11  Barb.  (N.  Y.)  580 

v.  North  Mo.  R.  R.  Co.  24  Mo.  493      . 
Dupont  v.  Bushong,  1  Weekly  Notes  of  Cases,  378 


.  359 

123,  142,  147,  328, 

562,  638 

7,  115,  119 

483 

.    202 

573,575 

.  429 


Durham  County,  &c.  Building  Soc.  in  re,  L.  R.  12  Eq.  521    .         .         .       218 
Dutchess  County  Ins.  Co.  v.  Hachfield,  1  Hun  (N.  Y.),  6  75  ;  47  How.  Pr. 

N.  Y.  330;  4*T.  &   C.  158 204,  207,  284,  285 

Dutton  v.  Marsh,  L.  R.  6  Q.  B.  361 311 

Dwight  v.  Newell,  3  N.  Y.  185 122 


East  Anglian  Ry.  v.  Eastern  Counties  Ry.  Co.  11  C.  B.  775;  7  Railw. 

Cas.  150 1, 

East  Boston  Freight  R.  R.  Co.  v.  Eastern  R.  R.  Co.  13  Allen  (Mass.),  422 

v.  Hubbard,  10  Allen  (Mass.),  459 
Eastern  Counties  Ry.  Co.  v.  Hawkes,  35  Eng.  L.  &  Eq.  8  ;  5  H.  L.  331 
Eastern  Union  Ry.  Co.  v.  Hart,  8  Exch.  116  . 

East  London  W." Works  Co.  v.  Bailey,  4  Bing.  283      .... 
Eaton  &  Hamilton  R.  R.  Co.  v.  Hunt,  20  Ind.  457. 
XXli 


350 


3,  7 

45 

191 

102 

187 

306 

399, 

417 

TABLE   OF   CASES   CITED. 

SECTION 

Ed^erton  v.  Muse,  2  Hill  (S.  C.)  Ch.  51 453 

Edwards  v.  Edwards,  L.  R.  1  Ch.  D.  454;  2  Ch.  D.  291  .         .         .         .493 

v.  Marcy,  2  Allen  (Mass.),  486 196 

Eldridge  v.  Smith,  34  Vt.  484 16 

Elizabethtown  &  Paducah  R.  R.  Co.  v.  Elizabethtown,  12  Bush  (Ky.),  233   .  161 

Elliot  v.Van  Voorst,  3  Wall.  Jun.  299 440 

Ellis  v.  Boston,  Hartford  &  Erie  R.   R.   Co.  107  Mass.  1  .    115,  413,  489,  566, 

568,  690 
v.  Indianapolis,   Cincinnati  &  Lafayette  R.   R.  Co.  6  Am.  Law  Rec- 
ord, 288         . 516 

Elmira  Iron  &  Steel  Rolling  Mill  Co.  v.  Erie  Ry.  Co.  26  N.  J.  Eq.  284  .  568 
Elwell  i'.  Grand  St.  &  Newtown  R.  R.  Co.  67  Barb.  (N.  Y.)  83.  88,  105,  130 
Emerson  v.  European  &  N.  A.  Ry.  Co.  67  Me.  387  .         .         .         116,122 

Emlen  v.  Lehigh  Coal  &  Navigation  Co.  47  Pa.  St.  76  334,  335 

Enthoven  v.  Hoyle,  13  C.  B.  373 204 

Ericsson  v.  Brown,  38  Barb.  (  N.  Y.)  390 580 

Erwin  v.  Davenport,  9  Heisk.  (Tenn.)  44 512 

Essex  County  R.  R.  Co.  v.  Town  of  Lunenburgh,  49  Vt.  143      .         .         .  268 

Etnvre  v.  McDaniel,  28  111.  201 336 

Evans  v.  R.  R.  Co.  (Pa.)  5  Leg.  &  Ins.  R.  107;  11  Pitts.  L.  J.  4  .  .  573 
Evansville,  Indianapolis  &  Cleveland  Straight  Line  R.  R.  Co.  v.  City  of 

Evansville,  15  Ind.  395     .         .         .         . 292 

Evelyn  v.  Lewis,  3  Hare,  472 493 

Evertson  v.  Nat.  Bank  of  Newport,  66  N.  Y.  14 ;  S.  C.  4  Hun,  692       .  207,  322, 

323,  326 

Pahs  v.  Roberts,  54  111.  194 425 

Fairfield  V.  Weston,  2  Sim.  &  St.  96 493 

Falconer  v.  Buffalo  &  Jamestown  R.  R.  Co.  69  N.  Y.  491 ;  7  Hun  499    255,  273,  275 

Farlow  v.  Lea,  6  C.  L.  J.  195 491 

Farmers'  &  Mechanics'  Bank  v.  Empire  Stone  Dressing  Co.  5  Bosw. 

(N.  Y.)  275 308,  350 

Farmers'  &  Merchants'  Insurance  Co.  v.  Needles,  52  Mo.  17  .         .       483 

Farmers'  Bank  v.  Beaston,  7  G.  &  J.  (Md.)  421 493 

Farmers'  Loan  &  Trust  Co.  v.  Cary,  13  Wis.  110 133 

v.  Central  R.   R.   of  Iowa,  5  Cent.   L.  J.  56; 
11  Western  Jurist  428;  4  Dill  533  ....         433,436,453,630 

Farmers'  Loan  &  Trust  Co.  v.  Commercial  Bank  of  Racine,  15  Wis.  424        133 
v.  Commercial  Bank,  11  Wis.  207       124,  127,  133 

i'.  Fisher,  17  Wis.  114 136 

v.  Hendrickson,  25  Barb.  (N.  Y.)  484     .         .165 

v.  Hughes,  11  Hun  (N.  Y.),  130  .         .       372 

v.  St.  Jo.  &  Denver  City  Ry.  Co.  3  Dill.  412      156 

Farnsworth  o.Minn.  &  Pacific  Ry.  Co.  92  U.  S.  49         ....         12 

Farnum  v.  Blackstone  Canal  Corp.  1  Sumner,  46         ....  406 

Field  o.  Post,  9  Vroom  (N.  J.),  346 144 

Fielder  /■.  Montgomery  &  Eufaula  R.  R.  Co.  51  Ala.  178  .  .  .  .  232 
First  Nat.  Bank  of  St".  Johnsbury  v.  Town  of  Concord,  50  Vt.  257  272,  291 
Fii-i  National  Bank  of  St.  Paul's  v.  County  Commissioners  of  Scott  Couniv, 

1  I  .Mimi.  77 199,  217 

Fi.-k  /•.  City  of  Kenosha,  26  Wis.  23 226 

v.  N.  Y.  Waterproof  Paper  Co.  29  N.  J.  Eq.  16    .        .        .        .434 

v.  Potter,  2  Abb.  (N.  Y.)  App.  Dec.  138 611 

Fitchett  V.  North  Pa.  R.  R.  Co.  ."-  Pliila.  (Pa.)  132  ....        332 

Flagg  v.  Mayor,  &c.  of  the  City  of  Palmyra,  S3  Mo.  440  .  .  .  .292 
Fletcher  v.  Rutland  &  Burlington  R.  R.  Co.  89  Vt.  638  .        .        .        .374 

Florida  v.  Anderson,  91  U.  8.  667 611 

v.  Jacksonville,  Pensacola  &  Mobile  R.  R.  Co.  15  Fla.  201  .     457,  459, 

475,476,483,487 
xxiii 


TABLE   OF   CASES   CITED. 

SECTION 

Foote  v.  Johnson  County,  6  Cent.  L.  J.  345 249,  269 

Forbes  v.  Memphis,  El  Paso  &  Pacific  R.  R.  Co.  2  Woods,  323  .  446,  465 

v.  San  Rafael  Turnpike  Co.  50  Cal.  340 88 

Force  v.  Citv  of  Elizabeth,  27  N.  J.  Eq.  408 219 

Foss  v.  Harbottle,  2  Hare,  461 318 

Foster  v.  Fowler  60  Pa.  St.  27 573 

Fountaine  v.  Carmarthen  Ry.  Co.  L.  R.  5  Eq.  316;   37  L.  J.  Ch.  429  21, 

191,  194 
Fowler  v.  Pittsburg  Fort  Wayne  &  Chicago  R.  R.  Co.  35  Pa.  St.  22      .       118 

Fox  v.  Seal,  22  Wall.  424 606 

Frazier  v.  Fredericks,  4  Zab.  (N.  J.)  162 144 

Freeholders  of  Middlesex  County  v.  State  Bank  of  New  Brunswick,  28  N. 

J.  Eq.  166 480 

Freeman  v.  Cooke,  2  Ex.  654 191 

v.  Fort,  14  Nat.  Bank  Reg.  46 691 

Fremoult  v.  Dedire,  1  P.  Wms.  429 122 

Fries  v.  Southern  Pa.  R.  R.  &  Mining  Co.  85  Pa.  St.  73  633 

Fripp  v.  Bridgewater.  &c.  Ry.  Co.  3  W.  R.  356 505 

v.  Chard  Ry.  Co.  11  Hare,  241 428,459,477 

Frisbee  v.  Timanus,  12  Fla.  300 459 

Five  v.  Tucker,  24  111.  180 353 

Furman  v.  Nichol,  8  Wall.  44 355 

Galena  &  Chicago  Union  R.  R.  Co.  v.  Menzies,  26  Bl.  121     .         .       114,  119 
Galveston  R.  R.  Co.   v.  Cowdrey,  11   Wall.   459  .     84,  114,  142.  147,   151, 

207,  432,  562,  563 
Gardner  v.  London,  Chatham  &  Dover  Ry.  Co.  L.  R.  2  Ch.  App.  201;  36 

L.  J.  Ch.  323 1,99,103,456,613 

Garrett  v.  May,  19  Md.  177 316 

Garvin  v.  Wiswell,  83  111.  215 283,  284 

Gelpcke  v.  City  of  Dubuque,  1  Wall.  175     .         .  198,  227,  230,  231,  240,  276, 

291,  332 
General  Estates  Co.  in  re,  L.  R.  3  Ch.  758       .         .         .       189,  197,  306,  311 

General  Provident  Ass.  Co.  in  re,  L.  R.  14  Eq.  507 5 

General  South  Am.  Co.  in  re,  L.  R.  2  Ch.  Div.  337        .         .  5,  72,  101 

George  v.  Oxford  Township,  16  Kans.  72  .         .         .         .         .         .         .  299 

Gere  w.  Cushing,  5  Bush  (Ky.),  304 593 

German  Mining  Co.  in  re,  4  De  G.,  M.  &  G.  19 5 

Getchell  v.  Allen,  34  Iowa,  559 577,  578 

Gilbough  v.  Norfolk  &  Petersburg  R.  R.  Co.  1  Hughes,  410       .     207,  320,  324 

Oilman  v.  Des  Moines  Valley  R.  R.  Co.  41  Iowa,  22       .         .         .         .553 

v.  Illinois  &  Miss.  Telegraph  Co.  91  U.  S.  603       .         .         .         .114 

v.  Sheboygan  &  Fond  du  Lac  R.  R.  Co.  37  Wis.  315  .         .       655 

Goddin  v.  Crump,"  8  Leigh  (Va.),  120 227 

Goodman  v.  Cincinnati  &  Chicago  R.  R.  Co.  2  Dis.  (Ohio)  176     .         .       625 

v.  Harvey,  4  Ad.  &  El.  870 199,  284 

v.  Simonds,   20  How.  343 199 

Goodwin  v.  Roberts,  L.  R.  10  Ex.  337;  1  App.  Cas.  476  .         .  189,  197,  205, 

206,   311 

Gordillo  v.  Weguelin,  L.  R.  5  Ch.  D.  287 333,  336 

Gordon  v.  Sea  Fire  &  Life  Ass.  Co.  1  H.  &  N.  599 20 

Gorgier  v.  Mieville,  3  B.  &  C.  45 205 

Gould  v.  Town  of  Sterling,  23  N.  Y.  456 291,  297 

Grand  Chute  v.  Winegar,  15  Wall.  355  ;  S.  C.  lb.   373         .  279,  288,  291 

Grand  Junction  Ry.  Co.  v.  Bickford,  23  Grant's  Ch.  (Ont.)  302  .  10,  11,  13,  218 
Grand  Rapids  &  Indiana  R.  R.  Co.  v.  Sanders,  54  How.  (N.  Y.)  Pr.  214 

209,  322 
Grand  Trunk  Ry.  Co.  v.  Eastern  Townships  Bank,  10  Lower  Can.  Jur.  11 ; 
16  lb.  173 187 

xxiv 


TABLE    OF   CASES    CITED. 

SECTION 

Grannahan  v.  Hannibal  &  St.  Jo.  R.  R.  Co.  30  Mo.  546         .         .         .       599 

Gravenstine's  Appeal,  49  Pa.  St.  310 477 

Grav  v.  Davis,  1  Woods,  420 '495 

Graydon  v.  Church,  7  Mich.  36 483 

Great  Northern  Rv.  Co.*t>.  Eastern  Counties  Ry.  Co.  21  L.  J.  Ch.  8  ;    9 

Hare,  306;   7  Railw.  Cas.  643  .  1 

Great  Western  Ry.  Co.  v.  Preston  &  Berlin   Ry.  Co.  17  Upp.  Can.  Q.  B. 

477 350 

Greeley  v.  People,  60  111.  19 223 

Greenpoint  Sugar  Co.  v.  King's  County  Manf.  Co.  7  Hun  (N.  Y.),  44       .     88 

Gue  v.  Tide  Water  Canal  Co.  24  How.  257 158,423 

Guernsey  v.  Burlington  Township,  4  Dill.  372 225,  295 

Gun n  v.  Barry,  15  Wall.  610 301 

Gurney  v.  Atlantic  &  Great  Western  Ry.  Co.  2  Thomp.  &  C  (N.  Y.)  446; 

58  N.  Y.  358         .         .         . 560 

Hackett  v.  City  of  Ottawa,  11  Chicago  Leg.  N.  82 284 

Haight  v.  Railroad  Co.  6  Wall  15 ;  S.  C.  TAbbott  C.  &  D.  Ct.  R.  81      .         96 
Hale  e.  Duncan,  6  Wash.  L.  R.  285  ;  6  Reporter,  422;  7  Cent.  L.  J.  146      499,  503 

v.  Houghton,  8  Mich.  458 223 

Halford  v.  Cameron's  Coalbrook,  &c.  Rv.  Co.   16  Q.  B.  442       .         .         .311 

Hall  v.  Sullivan  R.  R.  Co.  21  Law  Reporter,  138 3,  18 

Hall  Coal  Co.  in  re,  35  Beav.  449 551 

Hamilton  &  North  Western  Ry.  Co.  hire,  39  Q.  B.  Upper  Canada,  193        301 

Hamlin  v.  Meadville,  6  Neb.  227 283 

Hand  v.  Armstrong,  18  Iowa,  324     ........       336 

Hanna  v.  Cincinnati  &  Fort  Wavne  R.  R.  Co.  20  Ind.  30  .         .         .272 

Hannibal  &  St.  Jo.  R.  R.  Co.  u.  Marion  County,  36  Mo.  294  .         .       272 

Hanson  v.  Vernon,  27  Iowa,  28 227,  240 

Harcourt  v.  Good,  39  Tex.  455 227,  262 

Hardenbergh  v.  Van  Keuren,  4  Abb.  N.  C.  (N.  Y.)  43        .         .         .         .  278 

Hardy  v.  Merriweather,  14  Ind.  203 353 

Harshman  v.  Bates  County,  92  U.  S.  569;  3  Dill.  150  .         .  249,  269,  270,  272 
Hart  v.  Boston,  Revere  Beach  &  Lynn  R.  R.  Co.  121  Mass.  510         .         .596 

v.  Eastern  Union  Ry.  Co.  7  Ex.  246;  6  Railw.  &  Canal  Cas.  818 

1,  99,  102,  187 
Harton  v.  Town  of  Thompson,  17  Albany  Law  J.  334     .         .         .         .297 

Harwoodw.  Railroad  Co.  17  Wall.  78 642,651 

Hasbrouck  v.  City  of  Milwaukee,  25  Wis.  122 300 

Hatch  v.  Chicago,  Rock  [sland  &  Pacific  R.  R.  Co.  6  Blatchf.  105       .         .  409 

v.  Coddington,  95  U.  S.  48 85 

Hatcher  v.  Toledo,  Wabash  cSc  Western  R.  R.  Co.  62  111.  477      .     423,  657,  659 

Haven  v.  Adams,  4  Allen  (Mass.),  80 86 

v.  Emery,  33  X.  II.  66 143 

v.  Grand  Junction  R.  R.  &  Depot  Co.  12  Allen  (Mass.),  337  ;  109 

Mass.  88 198,320,329,330,366,398,634 

Havermeyer  v.  Iowa  County,  3  Wall.  294 276 

Hawkins  v.  Carroll  County,  50  Miss.  735    ...  ....  226 

Hayes  v.  Brotzman,  6  Reporter,  493         .......      495 

Hays  v.  Galion  Gas  Light  &  Coal  Co.  29  Ohio  St.  330       .        .         5,  23,  431 

•-.  Ottawa,  Oswego  &  Fox  River  Valley  R.  R.  Co.  61  111.  422        .  2 

Heine  v.  Levee  Commissioners,  19  Wall.  655 300,302 

Hendee  v.  Pinkerton,  14  Allen  (Mass.),  381 12,84,189 

Henderson  v.  Walker,  55  Ga.  im 512 

Henry  v.  Greal  Northern  Ry.  Co.  1  De  G.  &  J.  606;  4  Kay  &  J.  1         .       620 

II        ey  Township  v.  People,  84  111.  544 223,273 

Hervey  v.  111.  Midland  Ry.  Co.  7  Biss.  103 ni 

Hibblewhite  v.  M'Morine,  6  Mees.  &  W.  200 204 

Hickey  v.  Stewart,  8  How.  750 442 

X  \  V 


TABLE   OF   CASES   CITED. 


.  L.  R.  4  Ex.  387    . 

367     . 
,  11.  Co.  11  Wis.  214 

5  B.  &  A.  866     . 


Higgs  v.  Northern  Assam  Tea  Co 

Hill  v.  Forsythe  County,  67  N.  C. 

V.  La  Crosse  &  Milwaukee  R. 

v.  Manchester  \V.  Works  Co. 

Hills  v.  Parker,  111  Mass.  508 

Hinckley  v.  Gilman,  Clinton  &  Springfield  R.  R.  Co.  94  U.  S 
Hobbs  v.  Manhattan  Ins.  Co.  56  Me.  417    .... 

Hodge's  Appeal,  84  Pa.  St.  359 

Hodgeman  v.  Chicago  &  St.  Paul  Ry.  Co.  20  Minn.  48;  23  lb.  153 
Hodges  v.  New  England  Screw  Co.  1  R.  1.  312 

v.  Shuler,  22  N.  Y.  114 

Holdsworth  v.  Mayor  of  Dartmouth,  11  A.  &  E.  490 

Holland  v.  State  of  Florida,  15  Fla.  455 

Hollingsworth  v.  City  of  Detroit,  3  McLean,  472     . 

Holroyd  v.  Marshall,  10  II.  L.  191 

HoodV  New  York  &  N.  H.  R.  R.  Co.  22  Conn.  502       . 
Hoover  v.  Mont  Clair  &  Greenwood  Lake  Ry.  Co.  29  N.J.  Eq.  4 
Hopkins  v.  Connell,  2  Tenn.  Ch.  323 

v.  Crittenden,  10  Tex.  189 

v.  St.  Paul  &  Pacific  R.  R.  Co.  2  Dill.  396 

v.  Worcester  &  Birmingham  Ry.  Co.  L.  R.  6  Eq.  447 

Hopple  v.  Hippie,  7  Cent.  L.  J.  75 

Hotchkiss  v.  National  Banks,  21  Wall.  354,  affirming  10  Blatchf.  384 
Howard  v.  La  Crosse  &  Milwaukee  R.  R.  Co.  1  Woolworth,  49 

v.  Milwaukee  &  St.  Paul  Ry.  Co.  7  Biss.  73  . 
Howe  v.  Freeman,  14  Gray  (Mass.),  566  .... 

Howell  v.  Western  R.  R.  Co.  94  U.  S.  463  ... 


SECTION 

.  206 

227 

.  573 

.       192 

.  500,  501,  507 

467  455,530 

.  409 


637 
.  273 

350 

198 

20 

.  236 

332 
.     72,  122 

310 
34,  537,  539 

512 
.  336 

655 
.  456 

226 
200,  286 

521 
.  442 

169 
.     89 


Hoylei>.  Plattsburg  &  Montreal  R.   R.  Co.  51   Barb.  (N.  Y.)  45;  54  N. 

Y.  314;  7  Am.  Ry.  Rep.  283      .......         .165,166 

Hovt  v.  Thompson,  5  N.  Y.  320 85,  483 

Hubbard  v.  N.  Y.  &  Harlem  R.  R.  Co.  36  Barb.  (N.  Y.)  286;   14  Abb.  Pr. 

K  S.  275 198,  206,  285,  315 

Hugh  v.  McRae,  Chase's  Dec.  466 4  79 

Huidekopere.  Buchanan  County,  3  Dill.  175  ....       289,291 

v.  Dallas  County,  3* Dill.  171  274 

Humboldt  Township  v.  Long,  92  U.  S.  642       .         .         286,  291,  292,  294,  295 

Hunt  v.  Bullock,  23  111.  320 157 

v.  Columbian  Ins.  Co.  55  Me.  290 483 

Ide  v.  Passumpsic  &  Conn.  River  R.  R.  Co.  32  Vt,  397  .  .  .  .  197 
Illinois  Midland  R.  R.  Co.  v.  Waynesville,  6  Reporter,  457  .  .  .268 
Imperial  Land  Co.  of  Marseilles  in  re,  L.  R.  11  Eq.  478  ;  4  Cox  Joint  Stock 

Cas.  241 19,189,  197,  207 

Imperial  Mercantile  Credit  Asso.  v.  Newry  &  Armagh  Ry.  Co.  2  Ir.  Eq.  524  314 
Indiana  North  &  South  Ry.  Co.  v.  City  of  Attica,  56  Ind.  476  .  .  .  239 
Indianapolis,  Cincinnati  &  Lafayette  R.  R.  Co.  in  re,  5  Biss.  287  .  .  694 
Indianapolis,  Cincinnati  &  Lafayette  R.  R.  Co.  v.  Jones,  29  Ind.  465  .  .  415 
International  Life  Ass.  in  re,  L.  R.  10  Eq.  312 5 

Jackson  v.  Ludeling,  21  Wall.  616      .         • 645 

v.  Vicksburf,  Shreveport  &  Texas  R.  R.  Co.  2  Woods,  141       .       211 
v.  York  &  Cumberland  R.  R.  Co.  48  Me.  147         .         .    198,  323,  338 

James  v.  Milwaukee,  16  Wall.  159 274 

v.  Pontiac  &  Groveland  Plank  Road  Co.  8  Mich.  91  423 

v.  Railroad  Co.  6  Wall.  752 391,  649 

Jarrott  v.  City  of  Moberly,  5  Reporter,  583  ...  .  224,  226,  249 
Jefferson  City  Gas  Light  Co.  v.  Clark,  Sup.  Ct.  U.  S.  Oct.  T.  187  7         .       343 

Jeffries  v.  Lawrence,  42  Iowa,  498 240,  274 

Jenkins  v.  Jenkins,  1  Paige  (N.  Y.)  Ch.  243 467 

xxvi 


TABLE    OF   CASES   CITED. 

SECTION 

Jerome  v.  McCarter,  94  U.  S.  734       .         .         .      443,  450,  499,  535,  543,  691 

Jessup  v.  Bridge,  11  Iowa,  572 119 

Jesup  v.  City  Bank  of  Racine,  14  Wis.  331 89,  436 

v.  Wilmington  &  Manchester  R.  R.  Co.  2  S.  C.  469      .         .         .617 
Johnson  v.  Stark  County,  24  III.  75     .......  231 

Jones  v.  Keen,  115  Mass.  170 528 

v.  Swan,  21  Iowa,  181 591 

Jordan  v.  Cass  County,  3  Dill.  185  ;  S.  C.  lb.  245  .         .         249,  292,  302,  305 

Judson  v.  City  of  Plattsburg,  3  Dill.  181 292 

Junction  R.  R.  Co.  v.  Bank  of  Ashland,  12  Wall.  226      .         .         .         .319 

v.  Cleneay,  13  Ind.  161 198 

v.  Ruggles,  7  Ohio  St.  1 633 

Justices  of  Clarke  County  Court  v.  Paris,  Winchester  &  Kentucky  River 
Turnpike  Co.  11  B.  Mon.  (Ky.)  143 .271 

Kain  v.  Smith,  11  Hun  (N.  Y.),  552 511 

Kansas  City  &  Council  Bluffs  R.  R.  Co.  v.  Alderman,  47  Mo.  349  .  273,  274 
Kappner  ».  St.  Louis  &  St.  Joseph  R.  R.  Ass'n,  3  Dill.  228     .         .         .       693 

Kayser  v.  Trustees  of  Bremen,  16  Mo.  88 277 

Keane  v.  Athenrv  &  Ennis  Junction  Rv.  Co.  19  W.  R.  43,  318  .  .611 
Keep  v.  Mich.  Lake  Shore  R.  R.  Co.  6*  Chicago  L.  N.  101  .   407,  411,  421, 

474,  478,  484 

Kenicott  v.  Supervisors,  16  Wall.  452 226.  289,  449 

Kennard  v.  Cass  County,  3  Dill.  147 320,  337 

Kennebec  &  Portland  R.  R.  Co.  v.  Portland  &  Kennebec  R.  R.  Co.  59  Me. 

9 3,  6,  11,  18,  366,  398 

Kennedy  v.  St.  Paul  &  Pacific  R.  R.  Co.  2  Dill.  448  ..  .  535,  539 
Kennico'tt  v.  Supervisors  of  Wayne  Co.  6  Biss.  138  .  .  .  .  207,  208 
Kent  v.  N.  Y.  Central  R.  R.  Co.  12  N.  Y.  628  .         .         .         .       603,  608 

Ketchum  v.  City  of  Buffalo,  14  N.  Y.  356 283 

v.  Duncan,  96  U.  S.  659 320,  331 

v.  Mobile  &  Ohio  R.  R.  Co.  2  Woods,  532 371 

v.  Pacific  Railroad,  4  Dill.  78 76,  83 

v.  Pacific  Railroad  Co.  3  Cent.  L.  J.  637;  4  C.  L.  J.  458      .    561,  567 

Kimball  v.  Goodburn,  32  Mich.  10 479 

King  v.  Marshall,  33  Beav.  565     .........   103 

v.  Ohio  &  Miss.  Ry.  Co.  7  Biss.  529 505 

Kinney  v.  Crocker,  18  Wis.  74 501,  507,  509,  512 

Klein  v.  Jewett,  26  N.  J.  Eq.  474 500,  509,  512 

Knapp  v.  Mayor,  &c.  of  Hoboken,  39  N.  J.  L.  394 283 

v.  Railroad  Co.  20  Wall.  117 369,432 

Knight  v.  Wilmington  &  Manchester  R.  R.  Co.  1  Jones  L.  (N.  C.)  357       .  202 

Knox  v.  Lee,  12  Wall.  457 384 

Knox  County  v.  Aspinwall,  21  How.  539  ;  24  lb.  376  .         .   198,  291,  292, 

294,  300,  349 
Knoxville  &  Ohio  R.  R.  Co.  v.  Hicks,  15  Am.  Railw.  R.  197  .         .         .       660 

Koehler  v.  Black  River  Falls  Iron  Co.  2  Black,  715 87 

Kohler  v.  Smith,  2  Cal.  597 336 

La  Crosse  &  Milwaukee  R.  R.  Co.  v.  Vanderpool,  11  Wis.  119  .  .  .574 
La  Crusoe  Railroad  Bridge  in  re,  2  Dill.  465    ......       496 

Lafayette  Ins.  Co.  v.  French,  18  How.  404 406,409 

Lafayette,  Muncie  &  Bloomington  EL  R.  Co.  v.  Geiger,  34  Ind.  185  .      226,  239 
La  Grange  v.  State  Treasurer,  24  Mich.  468       ......  246 

Lamphear  v.  Buckingham,  '•>'■>  Conn.  23 7  .        .        .        .         .511,  .r>/>t; 

Land  Credit  Co.  of  Ireland  in  re,  L.  R.  4  Ch.  460     .        .         .        .  192,  306 

Lane  v.  Baughman,  17  Ohio  St.  642 424,425 

i;.  Schomp,  20  N.  J.  Eg.  82 254,  288 

Langston  v.  So.  Carolina  R.  R.  Co.  2  S.  C.  248      .        .       198,217,882,386 

xxvii 


TABLE    OF   CASES   CITED. 


Lansing  v.  County  Treasurer,  1  Dill.  522     .... 

Lash  v.  Lambert,  15  Minn.  416        ...... 

Lathrop  v.  Union  Pacific  Ry.  Co.  1  Me  Arthur  (D.  C),  234 
Lauman  v.  Lebanon  Valley  R.  R.  Co.  30  Pa.  St.  42 
Lawrason  v.  Mason.  3  ('ranch,  492;  2  Am.  Lead.  Cases,  334 
Lawrence  v.  Lawrence,  42  N.  II.  109      .... 

Lawson  v.  Milwaukee  &  Northern  Ry.  Co.  30  Wis.  507 
Lav  r.  Wisspian,  36  Iowa,  305 


SECTION 

.  300 
336 

.  406 
.       415 

.  355 
389 

.  227 
208 
Leavenworth  <Sc  Des  Moines  R.  R.  Co.  v.  County  Court  of  Platte  County, 

42  Mo.  171 268 

Leavenworth  County  v.  Miller,  7  Kans.  479  ;   12  Am.  R.  425       .  .  225,  227 

Leavenworth.   Lawrence  &  Galveston    R.  R.  Co.  v.  Douglas  County,   18 

Kans.169 ;  15  Am.  Railw.  R.  256  .... 

Le  Blanc  in  re,  I  Abb.  New  Cas.  (N.  Y.)  221 

Ledwieh  v.  McKhn,  53  N.  Y.  307 

Lee lom  v.  Plymouth  R.  R.  Co.  5  W.  &  S.  (Pa.)  265     . 

Leu-  v.  Mathieson,  2  Giff.  71  ;  29  L.  J.  Ch.  385 

Lehigh  Coal  &  Navigation  Co.  v.  Central  R.  R.   Co.  of  N.  J 

Eq.  252 

Leitch  v.  Wells,  48  N.  Y.  585 

L'Engle  v.  Florida  Cent.  R.  R.  Co.  14  Fla.  266 
Levering  v.  Mayor,  &e.  7  Humph.  (Tenn.)  553 
Lewis  v.  Bourbon  County,  12  Kans.  186      . 

v.  City  of  Clarendon,  6  Reporter,  609    .... 
Lister  v.  Republic  F.  Ins.  Co.  7  Biss.  26     .... 
Livingston  County  v.  Hannibal  &  St.  Jo.  R.  R.  Co.  60  Mo.  516 

Lloyd  v.  Mason,  2  M.  &  C.  487 

Loan  Association  v.  Topeka,  20  Wall.  655         .... 
Loder  v.  N.  Y.  Utica  &  Ogdensburg  R.  R.  Co.  4  Hun  (N.  Y.) 

Logan  v.  Courtown,  13  Beav.  22 

Logan  County  v.  City  of  Lincoln,  81  111.  156    . 

London  &  North  Western  Ry.  Co.  v.  M'Michael,  5  Ex.  855 

London  Financial  Asso.  v.  Wrexham,  &c.  Ry.  Co.  L.  R.  18  Eq 

London  India  Rubber  Co.  in  re,  3  7  L.  J.  Ch.  235 

Long  Branch  &  Sea  Shore  R.  R.  Co.  in  re,  24  N.  J.  Eq.  398    . 

Long  Branch  &  Sea  Shore  R.  R.  Co.  v.  Sneden,  26  N.  J.  Eq.  539 

Loudensehlager  v.  Benton,  3  Grant  (Pa.),  384;  4  Phila.  Rep.  420  . 

Louisville  &  Nashville  R.  R.  Co.  v.  County  Court  of  Davidson,   1   Sneed 

(Tenn.).  637 227,  268,  269 

Louisville,  Cincinnati  &  Charleston  R.  R.  Co.  v.  Letson,  2  How.  497  .  409 
Louisville,  New  Albany  &  Chicago  R.  R.  Co.  v.  Cauble,  46  Ind.  277  .  519 

Low  v.  California  Pacific  R.  R.  Co.  9  Am.  Railw.  366  ;  4  C.  L.  J.  487  .  351 
Lowe  v.  London  &  North  Western  Ry.  Co.  18  Q.  B.  632    .  .  .  .191 

Lowell  v.  City  of  Boston,  111  Mass.  454 223 

Lowndes  v.  Garnett,  &c.  Gold  Mining  Co.  33  L.  J.  (Ch.)  416  .  .  .5 
Lucas  v.  Tippecanoe  County,  44  Ind.  524         ......       239 

Ludlow  v.  Ilurd,  1  Dis.  (Ohio)  552 123,  124,  141,  423 

Luling  v.  City  of  Racine,  1  Biss.  314 282 

Luse  v.  Isthmus  Transit  Ry.  Co.  6  Oregon,  125  .  .  .  .  .85 
Lvcett  v.  Stafford  &  Uttoxeter  Ry.  Co.l,.  R.  13  Eq.  261 ;  41  L.  J.  474  .  611 
Lyell  v.  Supervisors  of  Lapeer  County,  6  McLean,  446  ....  410 
Lynde  v.  County,  16  Wall.  6 294,  317 

Maas  v.  Mo.,  Kansas  &  Tex.  Ry.  Co.  11  Hun  (N.  Y.),  8  .  .  .  .212 
Macon  &  Western  R.  R.  Co.  v.  Parker,  9  Ga.  377  .  .  .  .  159,  428 
Madison  &  Indianapolis  R.  R.  Co.  v.  Norwich  Saving  So.  24  Ind.  457     207,  353 

Madison  Co.  v.  Watertown  Co.  7  Wis.  59 350 

Maitland  v.   Citizens'  Nat.  Bank  of  Baltimore,  40  Md.   540;  17  Am.  R. 

620 308 

xxviii 


226,  227,  282 

494 

.  212,  285 

423 

.  612,  613 

29  N.  J. 

.  581 

202 

.  523 

189 

226,  273,  296 

272,  277 

.  687 

221 

.  493 

224,  227 

22         .       429 

.  350 

280 

.    191 

614 

.  620 

470,  521 

.   470 

160 


506 


TABLE   OF   CASES   CITED. 


438 


SECTION 

485 
Superior  Ct. 

90,  195 

606 

.  221 

.   495 

.  411 

432,  434 

292,  295 

336 

.  101 

282,  292 

406,  409 

227,  278 

.  434 

149,  407 

.  384 

70,  71,  432,  434 

.  620 

283 

.  473,  486 

.   493 

.  350 

222,  283 

.  225 

2,  7,  68 


77 


Mallett  v.  Dexter,  1  Curtis,  178 

Mallory  v.  West  Shore  Hudson  River  R.  R.  Co.  35  X.  Y 

174 

Malone  v.  Shamokin  Vallev  &  Pottsville  R.  R.  Co.  34  Leg.  Int. 
Maltby  v.  Reading  &  Columbia  R.  R.  Co.  52  Pa.  St.  140    . 
Manlove  v.  Burger,  38  Ind.  211        . 

Manufacturers'  Nat.  Bank  of  Chicago  r/Baack,  8  Blatchf.  137 
March  v.  Eastern  R.  R.  Co.  40  N.  H.  548        ... 
Marcy  v.  Township  of  Oswego,  92  U.  S.  637 
Marietta  Iron  Works  v.  Lottimer,  25  Ohio  St.  621  . 
Marine  Mansion  Co.  in  re,  L.  R.  4  Eq.  601 

Marsh  v.  Fulton  County,  10  Wall.  6  76 

Marshall  v.  Baltimore  &  Ohio  R.  R.  Co.  16  How.  314 

v.  Silliman.  61  111.  218 

Martin  v.  Mobile  &  Ohio  R.  R.  Co.  7  Bush  (Ky.),  116 
Maryland  v.  Northern  Central  Ry.  Co.  18  Md.  193 

v.  Railroad  Co.  22  Wall.  105        ... 
Mason  v.  York  &  Cumberland  R.  R.  Co.  52  Me.  82 
Matthews  v.  Great  Northern  Ry.  Co.  5  Jur.  N.  S.  284 
Matthis  v.  Town  of  Cameron,  62  Mo.  504 
May  v.  Printup,  5  Reporter,  392  ..... 
Maynard  v.  Bond,  6  Reporter,  530    .... 
Mayor  v.  Bait.  &  Ohio  R.  R.  Co.  21  Md.  50 

v.  Ray,  19  Wall.  468 

Mayor  of  Watumpka  v.  Newton,  23  Ala.  660 

McAllister  v.  Plant,  54  Miss.  106     . 

McAlpin  v.  Jones,  10  La.  Ann.  552     .... 

McArthur  v.  Montclair  Ry.  Co.  27  N.  J.  Eq 

McCad  v.  Byram  Mfg.  Co.  6  Conn.  428 

McClure  v.  Owen,  26  Iowa,  243 

v.  Township  of  Oxford,  94  U.  S.  429 
McCormick  v.  Parry,  7  Exch.  355    . 
McCoy  v.  Briant,  11  Chicago  Leg.  N.  84 

W.Washington  Co.   3   Wall.  Jun.  381;  7  Am.   Law  Reg.  193 

321,  340,  410 
McCullough  v.  Merchants'  Loan  &  Trust  Co.  29  N.  J.  217         .         .     480,  525 

MeCurdy's  Appeal,  65  Pa.  St.  290 84,  88,  399,  435 

M'Dermond  v.  Kennedy,  Bright.  (Pa.)  332 226,259 

McElrath  in  re,  2  Dill.  460 497 

McElrath  v.  Pittsburg  &  Steubenville  Ry.  Co.  55  Pa.  St.  189 :  68  lb.  37  ;  1 

Am.  Railw.  189 208,399,409,414,438,452 

McGraw  v.  Memphis  &  Ohio  R.  R.  Co.  5  Cold.  (Tenn.)  434  .         .         .       430 
McGregor  v.  Covington  6c  Lexington  R.  11.  Co.  1  Dis.  (Ohio)  509      .         .  318 

V.  Deal  &  Dover,  &c.  Ry.  Co.  18  Q.  B.  618     .         .         .         .       350 

v.  Erie  Ry.  Co.  35  N.  J.  L.  115 407 

Mcllrath  v.  Snure,  22  Minn.  391 426 

Mcllvain  v.  Hestonville  &  Mantua  R.  R.  Co.  5  Phila.  13     .         .         .         .573 

McKee  v.  Vernon  County,  3  Dill.  210 282,317 

McKinney  v.  Ohio  &  Miss.  R.  R.  Co.  22  Ind.  99 519 

McLane  v.  Abrams,  2  Nev.  199 336 

McLendon  v.  Com'ra  of  Anson  County,  71  N.  C.  38    .        .        .        .  832,  334 

McMahanw.  Morrison,  16  Ind.  172 415,416 

McMasters  v.  Reed,  l  Cram  (Pa.),  36 815 

McMillan  v.  Boyles,  11  Iowa,  L07  240 

v.  X.'V.  Water  Proof  Paper  Co.  29  N.  J.  Eq.  610      .        .        .164 

McMillen  v.  Boyles  County  Judge,  6  Iowa,  304 240 

McMinnville  &  Manchester  K.  K.  v.  Huggins,  59  Tenn.  177        .        .  496 

McNab  o.  Noonan,  28  Wis.  434 195 

McPheeters  v.  Merimac  Bridge  Co.  28  Mo.  465 573 

\.\ix 


226,  297, 


399 

483 
528 

84 
240 
299 

20 
268 


TABLE   OF   CASES   CITED. 

SECTION 

McPherson  v.  Foster,  43  Iowa,  48 280,  295 

McPike  v.  Lincoln  County,  7  Cent.  L.  J.  264 410 

Mead  v.  Keeler,  24  Barb.  (N.  Y.)  201 5 

Meara  v.  Holbrook,  20  Ohio  St.  137  ;  5  Am.  R.  633  .  .  500,  509,  512 
Mechanics',  &c.  Building  Asso.  v.  Meriden  Agency  Co.  24  Conn.  159  .  350 
Meier  «.  Kansas  Pacific  Ry.  Co.  12  Chicago  Legal  News,  41  ;  4  Dill.  378; 

6  Reporter,  642 440,481,526 

Melvin  v.  Lisenby,  5  Cent.  L.  J.  15 269,288 

Memphis  City  v.  Dean,  8  Wall.  64 484,  485 

Mendenhall  v.  West  Chester  &  Phila.  R.  R.  Co.  36  Pa.  St.  145  .  .  .  653 
Mercer  County  v.  Hacket,  1  Wall.  83  .       198,  284,  291,  293,  294,  320,  349 

Merchants'  Rank  v.  Petersburg   R.  R.  24  Pitts.  L.  J.  192  ;  5   Cent.  L.  J. 
74;  4  W.  Notes  of  Cas.  264;  34  Leg.  Int.  240    .  .  .         114,  115,  118 

Merchants'  Bank  v.  State  Bank,  10  Wall.  604 288 

Merchants'  Banking   Association  v.  N.  Y.,  &c.  White   Lead   Co.  35  N.  Y. 

505 308 

Merchants'  National  Bank  v.  Eastern  R.  R.  Co.  124  Mass.  518  .  .  .  346 
Mersey  Docks'  Trustees  v.  Gibbs,  L.  R.  1  H.  L.  93  .  .  .  .512 
Met/  v.  Buffalo,  Corry  &  Pittsburg  R.  R.  Co.  58  N.  Y.  61  .  493,  520,  654,  656 
Meyer  v.  City  of  Muscatine,  1  Wall.  384  .  .  .  230,  291,  294,  349,  383 
v.  Johnston,  53  Ala.  237;  15  Am.  Railw.  R.  467  .  15,  129,  130,  134, 
147,  149,  152,  415,  474,  480,  533,  534,  537,  539,  541,  563,  568 

Michigan  Bank  v.  Eldred,  9  Wall.  544 204 

Middleton  v.  N.  J.  West  Line  R.  R.  Co.  25  N.  J.  Eq.  306       .         .         .         91 
v.  N.  J.  West  Line  R.  R.  Co.  26  N.  J.  Eq.  269         .         .  469 

Miller  v.  N.  Y.  &  Erie  R.  R.  Co.  18  How.  (N.  Y.)  Pr.  374  ;  8  Abb.  Pr.  431 

217,  313 
v.  Rutland  &  Washington  R.  R.  Co.  40  Vt.  399  ;  36  Yt.  452  .       16,  18, 

73,  86,  149,  322,  327,  363,  389,  615,  638 

v.  Tiffany,  1  Wall.  298 319 

v.  Town  of  Berlin,  13  Blatchf.  245  ...     291,  320,  324,  337 

Mills  v.  Gleason,  11  Wis.  470 223,283 

v.  Town  of  Jefferson,  20  Wis.  50 332 

Milwaukee  &  Minn.  R.  R.  Car.  Soutter,  2  Wall.  440  ;  S.  C.  lb.  510  ;  Wool- 
worth,  49      455,457,459,522 

Milwaukee  &  Minn.  Ry.  Co.  v.  Milwaukee  &  Western   R.  R.  Co.  20  Wis. 

174 108 

Milwaukee   &  St.  Paul  R.  R.  Co.  v.  Milwaukee  &  Minn.  R.  R.  Co.  20  Wis. 

ir"  421 

Minnesota  Qo.'v.  St'.  Paul  Co.'e  Wall.  742  ;  S.  C.  2  Wall.  609  155,  156,  450 
Minot  v.  Phila.,  Wilmington  &  Bait.  R.  R.  Co.  2  Abbott's  C.  &  D.  Ct.  R. 

323 412 

Mississippi  Val.  &  Western  Ry.  Co.  v.  U.  S.  Express  Co.  81  111.  534  .  115 
Missouri,  Ivans.  &  Tex.  Ry.  Co.  v.  Baker,  14  Kans.  563      .         .         .         .  5S0 

v.  Brown,  14  Kans.  557  .  .  .       592 

v.  City  of  Fort  Scott,  15  Kans.  435  .         .  273 

Missouri  River,  Ft.  Scott  &  Gulf  R.  R.  Co.  v.  Miami  Co.  12  Kans.  234   .       273 

Mitchell  v.  Burlington,  4  Wall.  270 227 

v.  Winslow,  2  Story,  630 122 

Mobile  &  Cedar  Point  R.  R.  Co.  v.  Talman,  15  Ala.  472     .         .         .         .6 

Mobile  &  Ohio  R.  R.  Co.  v.  Mosely,  52  Miss.  127 221 

Monument  Nat.  Bank  v.  Globe  Works,  101  Mass.  57 ;  3  Am.  R.  322     5,  23,  308 

Moore  v.  Titman,  44  111.  367 115 

Moran  v.  Commissioners  of  Miami  County,  2  Black,  722  .  .  291,  294 
Morford  v.  Farmers'  Bank  of  Saratoga  County,  26  Barb.  (N.  Y.)  568        .  308 

Morgan  v.  Jones,  8  Ex.  620 336 

v.  Louisiana,  93  U.  S.  217 660 

Morgan  County  v.  Thomas,  76  111.  120 276,  654 

Morison  v.  Morison,  7  De  G.,  M.  &  G.  214 547 

XXX 


.   510 

306,  307 

295 

.  306 

220 

.  283 

414, 452 

.  279 

315 

611,  614 

.   423 

273,  282 


TABLE  OF  CASES  CITED. 

SECTION 

Morrill  v.  Noyes,  56  Me.  458 122,150,502 

Morris  Canal  &  Banking  Co.  v.  Fisher,  9  N.  J.  Eq.  (1  Stockt.)  667  .         .  198, 

284,  618 

v.  Lewis,  12  N.  J.  Eq.  223  ...       284 

Morrison  v.  Eaton  &  Hamilton  R.  R.  Co.  14  Ind.  110 

Morse  v.  Brainerd,  41  Vt.  550 

Moseley  Green  Coal  &  Coke  Co.  in  re,  4  De  G.,  J.  &  S.  756 
Mosher  v.  Independent   School  Dist.  of  Ackley,  44  Iowa,  122 

Moss  v.  Averell,  10  N.  Y.  449 

Muhlenberg  v.  Phila.  &  Reading  R.  R.  Co.  47  Pa.  St.  16 
Mullarky  v.  Town  of  Cedar  Falls,  19  Iowa,  21    . 

Muller  v.  Dows,  94  U.  S.  444 409 

v.  Pondir,  55  N.  Y.  325 

Mumford  v.  Am.  Life  Ins.  &  Trust  Co.  4  N.  Y.  463        .         . 
Munns  v.  Isle  of  Wight  Ry.  Co.  L.  R.  5  Ch.  414;  L.  R.  8  Eq.  653 

Munroe  v.  Thomas,  5  Cal.  470 

Munson  v.  Town  of  Lyons,  12  Blatchf.  539  .... 

Murdock  v.  Woodson,  2  Dill.  188 78,  82,  361,  405 

Murray  v.  Charleston,  96  U.  S.  432 221 

v.  Deyo,  10   Hun  (N.  Y.),  3 368 

v.  Lardner,  2  Wall.  110 199,  200,  207,  284 

Myatt  w.  St.  Helen's,  &c.  Ry.  Co.  2  Q.  B.  364         .         .         -1,11,  100,  102 
Myer  v.  Crystal  Lake  Pickling  &  Preserving  Works,  14  N.  B.  R.  9  .         .  691 

Myers  v.  County  of  Johnson.  14  Iowa,  47 240 

v.  York  &  Cumberland  R.  R.  Co.  43  Me.  232  .         .         .    198,  320,  323 
Mygatt  v.  City  of  Green  Bay,  1  Biss.  292 293,  299 

Napa  Valley  R.  R.  Co.  v.  Supervisors  of  Napa  County,  30  Cal.  435  .         .276 

Natal  Investment  Co.  in  re,  L.  R.  3  Ch.  355 197 

National  Bank  of  Cleveland  v.  City  of  Lola,  9  Kans.  689     .         .    223,  224,  278 
National  Bank  of  N.  A.  v.  Kirby,  108  Mass.  497      .         .         .         .  199 

National  Exchange  Bank  v.  Hartford,  Providence  &  Fishkill  R.  R.  Co.  8 

R.  I.  375  .         ° 337 

National  Park  Bank  of  N.  Y.  v.  Nichols,  4  Biss.  315        .         .         .        409,411 

Native  Iron  Ore  Co.  in  re,  L.  R.  2  Ch.  D.  345 194 

Neilson  v.  Iowa  Eastern  Ry.  Co.  44  Iowa,  71  .         .         .         .        576,  577,  578 

Nelson  v.  Eaton,  26  N.  Y.  410 5 

v.  Iowa  Eastern  R.  R.  Co.  8  Am.  Railw.  R.  82      .  .         .        210,  577 

Newark  Savings  Institution  v.  Panhorst,  7  Biss.  99 304 

Newby  v.  Oregon  Cent.  Ry.  Co.  1  Sawyer,  63 402 

New  Clydock  Sheet  &  Bar 'iron  Co.  in  re,  L.  R.  6  Eq.  514  .         .         .         .  101 

Newell  i\  Smith,  49  Vt.  255 .         .       510 

New  En  ;land  Car  Spring  Co.  v.  Bait.  &  Ohio  R.  R.  Co.  11  Md.  81    .    578,  593 

Newhalfr.  Karens,  70   111.  156 589 

New  Haven,  Middletown  &  Willimantic  11.  R.  Co.  v.  Town  of  Chatham,  42 

Conn.  465  ;  10  Am.  Railw.  168 280,281,302 

New  Jersey  &  N   Y.  Ry.  Co.  in  re,  2!)   N.  J.  Eq.  6  7  .  .  .  .496 

New  Jersey  Midland  Ry.  Co.  v.  Strait,  35  N.  J.  L.  322        ...  420 

v.  Wortendyke,  27  N.  J.  Eq.  658        .         .       565 
New  London  City  National  Bank  v.  Ware  River  R.  R.  Co.  41  Conn.  5  12    .   :!.'!7 

New  Orleans  v.  Clark,  95   U.  S.  <;  n 278,343 

New  Orleans,  Jackson  &  Great  Northern   R.  It.  Co.  v.  Mississippi  College, 

17  Miss.  560 2()7,  219,  389 

New  Orleans,   Jackson    &   Great   Northern   It.   It.  Co.  V.   Harris,  27   Miss. 

517 3 

New  Orleans,  Mobile  &  Chattanooga  R.  R.  Co.  v.  Dunn,  51  Ala.  128.  .  226 
New  Orleans  R.  R.  Co.  v.  Morgan  Co.  10  Wall.  256  .  .  .  .645 
Newport  &  Cincinnati  Bridge  Co.  u.  Douglass,  12  Bush   (Ky.),  678    .  504,558, 

565,  568 

xxxi 


TABLE   OF    CASES    CITED. 

SECTION 

Newton  v.  Kerch,  9  Hun  (N.  Y.),  355 230 

New  York  &  Erie  R.  R.  Co.  v.  Shepard,  5  McLean,  455     .         .         .         .  409 

Ney  v.  Dubuque,  &c.  R.  R.  Co.  20  Iowa,  347 580 

Nichol  v.  Mayor,  &c.  of  Nashville,  9  Humph.  (Tenn.),  252.  .  .  .  227 
Nichols  r.  New  Haven  &  Northampton  R.  R.  Co.  42  Conn.  103     .         .       660 

Nicolay  v.  St.  Clair  County,  3  Dill.  163 274,  292,  295 

Noble  y.  City  of  Vincennes,  42  Ind.  125 239 

Northern  Indiana  R.  R.  Co.  v.  Michigan  Cent.  R.  R.  Co.  5  McLean,  444; 

15   How.  233 406,413,489 

North  Hallenbeagle  Mining  Co.  in  re,  L.  R.  2  Ch.  321  .  .  .  .  194 
North  Hudson  Countv  R.  R.  Co.  v.  Booream,  28  N.  J.  Eq.  450  .  .  655 
North  Pennsylvania  R.  R.  Co.  v.  Adams,  54  Pa.  St.  94  .         .       332,  334 

North  Western  Ry.  Co.  v.  M'Michael,  5  Ex.  114;  S.  C.  lb.  855  .  .  191 
Norton  v.  Florence  Land  &  Public  Works  Co.  26  W.  R.  123  .         .         .       314 

Norway  v.  Rowe,  19  Ves.  Jun.  144  . 515 

Norwich  Yarn  Co.  in  re,  22  Beav.  143 5,192 

Noyes  v.  Rich,  52  Me.  115 115,118,493 

Nugent  v.  Supervisors  of  Putnam  County,  19  Wall.  241  .         .         .       271,  272 

Oakland  Ry.  Co.  v.  Keenan,  56  Pa.  St.  198 423,  429 

Ogdensburgh  &  Lake  Champlain  R.  R.  Co.  v.  Vt.  &  Canada  R.  R.  Co.  4 

Hun  (N.  Y.),  268 496 

Ohio  &  Miss.  R.  R.  Co.  v.  Davis,  23  Ind.  553 516 

v.  Fitch,  20  Ind.  498 519 

v.  McPherson,  35  Mo.  13 84 

v.  Wheeler,  1  Black,  286     .         .         406,  407,  409,  412 
Ohio  Valley  Iron  Works  v.  Town  of  Moundsville,  11  W.  Va.  1  .         .         .   223 

Olcott  v.  Bvmun,  17  Wall.  44 277 

v.  Supervisors,  16  Wall.  678 227 

r.  Tioga  R.  R.  Co.  27  N.  Y.  546 306,  308,  353 

O'Mahoney  v.  Belmont,  37  N.  Y.  Superior  Ct.  380;  48  How.  Pr.  29         .  487 

Opdyke  y.  Pacific  R.  R.  Co.  3  Dill.  55 355 

Opinion  of  Judges,  58  Me.  590 224 

Osage  Valley  v.  So.  Kansas  R.  R.  9  N.  B.  R.  281 687 

Osgood  v.  Maguire,  61  N.  Y.  524 483 

Otis  v.  Cullum,  92  U.  S.  447 219 

Owens  v.  Hastings,  18  Ivans.  446 427 


500,  507. 


110,  113,  157, 
R.  5 


Pacific  R.  R.  Co.  v.  Cass  County,  53  Mo.  17        ... 

Pacific  Railroad  v.  Missouri  Pacific  R.  R.  Co.  15  Am.  Railw.  R.  80 

Pacific  R.  R.  Co.  of  Missouri  v.  Ketchum,  95  U.  S.  1  . 

Packard  y.  Jefferson  County,  2  Colo.  338 

Paige  v.  Smith,  99  Mass.  395        .         .         .      "  . 

Paine  y.  Lake  Erie  &  Louisville  R.  R.  Co.  31  Ind.  283 

Palmer  v.  Clark.  4  Abb.  N.  C.  (N.  Y.)  25    . 

v.  Forbes,  23  111.  301 

Panama,   New  Zealand  &  Australian  Royal  Mail  Co.  in  re,  L 

321  ;  4  Cox's  Joint  Stock  Cas.  35 
Paradise  v.  M.  &  F.  Bank  of  Memphis,  5  La.  Ann.  710 
Parish  v.  Wheeler,  22  N.  Y.  494 
Parker  v.  Browning,  8  Paige  (N.  Y.),  388  . 

v.  Mass.  K.  R.  Co.  115  Mass.  580  . 
Parkhurst  v.  Northern  Central  R.  R.  Co.  19  Md.  472  . 
Parsons  v.  Lyman,  5  Blatchf.  170     . 
Partridge  v.  Badger,  25  Barb.  (N.  Y.)  146 

v.  Bank  of  England,  9  Q.  B.  396    . 

Patent  File  Co.  in  re,  L.  R.  6  Ch.  83 

Patterson  v.  Hempfield  R.  R.  Co.  1  Weekly  Notes  of  Cases,  127 

v.  Supervisors,  13  Cal.  175 

xxxii 


.  171 

.       472 

.  472 

268,  273 

509,  512 

415 

.  495 

365,  370 

Ch. 

.   1,  128 

.  483 

107 

.  495 

596 

.  117 

.       485 

.       5 

.       323 

.       5 

551 

.  231 


TABLE    OF   CASES    CITED. 

SECTION 

Pavne  v.  Baxter,  2  Tenn.  Ch.  517 502 

v.  Hook,  7  Wall.  432 443 

Peacock  v.  Pittsburg  Locomotive  &  Car  Works,  52  Ga.  417     .         .         .       524 

Pearce  r.  Hennessy,  10  R.  I.  223 336 

Pendleton  County  v.  Amy,  13  Wall.  297 22G,  282 

Pennington  v.  Baehr,  48  Cal.  565 317 

Pennock  v.  Coe,  23  How.  117 122,124,147,148,434 

Pennsylvania  v.  Quicksilver  Co.  10  Wall.  553 411 

Pennsylvania  &  Del.  R.  R.  Co.  v.  Leuffer,  84  Pa.  St.  168;  24  Pittsburg  L. 

•J.  177  ;  5  Cent.  L.  J.  74  ;  4  Weekly  Notes,  77  .         .         .         .         580,  606 

Pennsylvania  R.  R.  Co.  0.  City  of  Philadelphia,  47  Pa.  St.  189  .         .    226,  259 

0.  Pemberton  &  N.  Y.  R.  R.  Co.  28  N.  J.  Eq.  338      344 

0.  People,  6  C.  L.  J.  436 407 

People  w.  Batchellor,  45  N.  Y.  128 224,  229,  270 

0.  Cline,  63  111.  394;   7  Am.  Railw.  R.    373        .  .     280,  281,  299,  302 

v.  Common  Council  of  Detroit,  28  Mich.  228  ;  15  Am.  R.  202    .         223 

v.  County  of  Tazewell,  22  111.  147 270 

v.  Eastman,  25  Cal.  603 221 

0.  Erie  Ry.  Co.  54  How.  (N.  Y.)  Pr.  59 496 

r.  Garner,  4  7  111.  246 269 

0.  Lake  Shore  &  Mich.  South.  R.  R.  Co.  11  Hun  (N.  Y.),  1     .         .407 

v.  Mead,  24  N.  Y.  114;  36  lb.  224 291,297 

0.  Mitchell,  35  N.  Y.  551 227 

v.  Ohio  Grove  Township,  51  111.  192 276 

0.  State  Treasurer,  24  Mich.  4G8 246 

v.  State  Treasurer,  23  Mich.  499 246 

v.  Township  Board  of  Salem,  20  Mich.  452  ;  4  Am.  R.  400        229,  246 

v.  Wiant,  48  111.  263 269 

Perkins  v.  Deptford  Pier  Co.  13  Sim.  277 187,316 

v.  Pritchard,  3  Rv.  &  Canal  Cas.  95 99,  187 

Perry  0.  Keene,  56  N.  H.  514 223,227,228,252 

Peruvian  Rv.  Co.  0.  Thames  &  Mersey  M.  Ins.  Co.  L.  R.  2  Ch.  617  .     306,  307 
Peters  0.  St  Louis  &  Iron  Alt.  R.  R.  Co.  23  AIo.  107  ;  24  Alo.  586        .  599,  608 

Peto  0.  Brighton,  &c.  Ry.  Co.  1  H.  &  M.  468 74 

Pettingill  v.  Androscoggin  R.  R.  Co.  51  Ale.  370 118 

Pfeiferv.  Sheboygan  tCFond  du  Lac  R.  R.  Co.  18  Wis.  164  .         633,655 

Philadelphia  &  Baltimore  Central  R.  R.  Co.  v.  Johnson,  54  Pa.  St.  127 

334,400 
Philadelphia  &  Sunbury  R.  R.  Co.  0.  Lewis,  33  Pa.  St.  33  .  .195,  208,  313 
Philadelphia  &  Wilmington  It  R.  Co.  v.  Maryland,  10  How.  376  .  272,  415 
Philadelphia,  WiL  &Balt.  R.  R.  Co.  v.  Woelpper,  64  Pa.  St.  366      .        .    123 

Phillips  v.  Town  of  Albany,  28  Wis.  340 230,  266 

v.  Winslow,  18  B.  Mon.  (Ky.)  431  .         .         .       6,124,126,150,161 

Pickard  0.  Sears,  6  Ad.  &  El.  469 191 

Pierce  v.  Emery,  32  N.  H.  484    .  .         .  3,  15,  125,  126,  168,  363,  364 

v.  Milwaukee  &  St.  Paul  It.  R.  Co.  24  Wis.  551  .  .  .  6,  7,  611 
Pittsburg  &  Steubenville  It.  It.  Co.  0.  Allegheny  County,  79  Pa.  St.  210  .  350 
Pittsburg,  Cincinnati  &  St.  Louis  Rv.  Co.  0.  Marshall,  85  Pa.  St.  187  .  443 
Piatt  0.  N.  Y.  &  Boston  It.  It.  Co.  26  Conn.  544  .         .         .         .415,686,688 

Police  Jury  0.  Britton,  15  Wall.  566 226,283 

Pollard  v.  City  of  Pleasant  Hill,  3  Dill.  195 292,383 

v.  Maddox,  28  Ala.  321 7 

Pond  0.  Cooke,  6  Reporter,  516  492 

Po    et  v.  Basingstoke  Canal  Co.  3  Bing.  N.  C.  438  ....      102 

Pooley  Hall  Colliery  Co.  in  re,  21  L  J.  N   S.  690 20 

Porter  v.  Androscoggin  &  Kennebec  It.  R.  Co.  37  Me.  349  ...  86 
Port  Huron  &  Gratiol  Ry.  Co.  v.  Judge  of  St.  Clair  Circuit,  81  Mich.  456  .  1  i7 
Portland  &  Ogdcnsburg  R.  R.  Co.  0.  Standish,  65  Me.  63  .  .  .  243 
Portland  &  Oxford  Central  R.  R.  Co.  V.  Hartford,  58  Me.  28  .  268,  273,  299 
c  xxxiii 


TABLE   OF   CASES   CITED. 


SECTION 

Potts  v.  N.  J.  Arms  &  Ordnance  Co.  17  N.  J.  Eq.  395    .         .         .         .       469 
v.  Warwick  &  Birmingham  Canal  Co.  Kay,  142.         .         .  456,  477,  504 

Powell  v.  North  Mo.  R.  H.  42  Mo.  63 418 

Prescott  v.  Flinn,  9  Bing.  19 353 

Preston  v.  Corporation  of  Great  Yarmouth,  L.  R.  7  Ch.  App.  655  .         .       314 

Price  v.  Great  Western  Ry.  Co.  16  M.  &  W.  244 336 

Prince  of  Wales,  &c.  Co.  v.  Harding,  EL,  Bl.  &  El.  183  .        .        .       191,  192 
Prouty  v.  Lake  Shore  &  Mich.  Southern  Ry.  Co.  52  N.  Y.  363    .         .         .  418 

Pruyn  v.  City  of  Milwaukee,  18  Wis.  367 336 

Pullan  v.  Cincinnati  &  Chicago  Air  Line  R.  R.  Co.  4  Biss.  35;  S.  C.  5  lb. 

237 3,  7,  13,  119,  120,  149,  459,  463 

Pusey  v.  N.  J.  West  Line  R.  R.  Co.  14  Abb.  (N.  Y.)  Pr.  N.  S.  434     .     19,  306 
Putnam  v.  City  of  New  Albany,  4  Biss.  365 278 

Quincy,  Missouri  &  Pacific  R.  R.  Co.  v.  Morris,  84  111.  410         .         .  227,  278 

Racine  &  Miss.  R.  R.  Co.  v.  Farmers'  Loan  &  Trust  Co.  49  111.  331  .      417,  646 

Raikes  v.  Todd,  8  Ad.  &  El.  846 691 

Railroad  Co.  v.  Bradleys,  7  Wall.  575 455 

v.  Brown,  17  Wall.  445 517 

v.  County  of  Otoe,  16  Wall.  667;  2  Neb.  496       .         .         .       227 

v.  Harris,  12  Wall.  65 409,  415 

v.  Howard,  7  Wall.  392       .         202,  354,  445,  640,  641,  647,  653 

v.  Jackson,  7  Wall.  262 221 

v.  James,  6  Wall.  750 186,428,442 

.  437 

288 

.  221 

.       525 

.  391 

.       455 

.  409 

97 

.  165 

.       469 

.     91 

98,  104 

.  226 

207 

6,  87 

300,  302,  304,  305 

.  318 

542,  552,  692 


v.  Orr,  18  Wall.  471        ..         . 
v.  Otoe  County,  1  Dill.  338 
p.  Pennsylvania,  15  Wall.  300 
v.  Sloan,  31  Ohio  St.  1 
v.  Soutter,  13  Wall.  517 
v.  Swasey,  23  Wall.  405      . 
Railway  Co.  v.  Whitton,  13  Wall.  270 
Ramsey  v.  Erie  Ry.  Co.  38  How.  Pr.  (N.  Y.)  193 
Randall  r.  El  well,  52  N.  Y.  521  . 
Randolph  v.  Larned,  27  N.  J.  Eq.  557 

v.  Middleton,  26  N.  J.  Eq.  543    . 
v.  N.  J.  West  Line  R.  R.  Co.  28  N.  J.  Eq.  49 
Ranlett  v.  Leavenworth,  1  Dill.  263     .... 
Raphael  v.  Bank  of  England,  17  C.  B.  161 

Reed  v.  Bradley,  17  111.  321 

Rees  v.  City  of"  Watertown,  19  Wall.  107         ..         . 
Regent's  Canal  Iron  Works  Co.  in  re,  24  W.  R.  687    . 

L.  R.  3  Ch.  D.  411      . 
Reiger  v.  Commissioners  of  the  Town  of  Beaufort,  70  N.  C.  319  .         .         .  256 

Reinach  v.  Meyer,  55  How.  (N.  Y.)  Pr.  283  387 

Reineman  v.  Covington,  &c.  R.  R.  Co.  7  Neb.  310        .         .  226,  227,  250 

Rensselaer  &  Saratoga  R.  R.  Co.  v.  Miller,  47  Vt.  146     .        .         .         .       547 

Rhos  Hall  Co.  in  re,  17  W.  R.  343 197 

Rice's  Appeal,  79  Pa.  St.  168 344,  636,  639 

Richards  v.  Chesapeake  &  Ohio  R.  R.  Co.  1  Hughes,  28     .         .     436,  443,  480 

v.  Cooper,  5  Beav.  304 443 

v.  Merrimack  &  Conn.  River  R.  R.  Co.  44  N.  H.  127  .      2,  6,  14,  375 

v.  People,  81  111.  551 482,504 

Richardson  v.  Sibley,  11  Allen  (Mass.),  65 3,661 

Riche  v.  Ashbury  Ry.  Carriage  Co.  L.  R.  11  Ex.  224      .         .         .         .  1 

Richmond,  Fredericksburg  &  Potomac  R.  R.  Co.  v.  Snead,  19  Gratt.  (Va.) 

354  86,  306 

Rider  v.  Vrooman  12  Hun  (N.  Y.),  299 493 

Riggs  v.  Johnson  County,  6  Wall.  166 300,  304 

XXXJv 


TABLE   OF   CASES   CITED. 

SECTION 

Ring  i\  County  of  Johnson,  6  Iowa,  265  .......       337 

Ripon  v.  Railroad  Companies,  16  Wall.  446 651 

Ritchie  v.  Franklin  County,  22  Wall.  167 278 

Robinson  v.  Atlantic  &  Great  Western  R.  R.  Co.  66  Pa.  St.  160    .        504,  505 

v.  Bidwell,  22  Cal.  379 .227 

v.  City  of  St.  Louis,  28  Mo.  488 223 

Rockwell  v.  Elkhorn  Bank,  13  Wis.  653 5 

Ro"-an  v.  City  of  AVatertown,  30  Wis.  259 266 

Rogers  v.  Burlington,  3  Wall.  654 223,  227,  230,  280 

v.  Mich.  South.  &  N.  Ind.  R,  R.  Co.  28  Barb.  (N.  Y.)  539  .       403 

v.  Wheeler,  43  N.  Y.  598;  2  Lans.  486 511,556 

Rome  v.  Cabot,  28  Ga.  50 223 

Rose  t'.  Page,  2  Sim.  471 443 

Rothgerber  v.  Dupuy,  64  Bl.  452 589 

Roval  Bank  of  Liverpool  v.  Grand  Junction  R.  R.  &  Depot  Co.  100  Mass. 

444 189 

Royal  British  Bank  v.  Turquand,  5  El.  &  Bl.  248;  S.  C.  6  lb.  327      5,  191,  294 

Rubev  v.  Shain,  54  Mo.  207 273 

Rumball  v.  Metropolitan  Bank,  L.  R.  2  Q.  B.  D.  194 197 

Russell  v.  East  Anglian  Rv.  Co.  3  Mac.  &  G.  151 ;  6  Railw.  Cases,  501    314,  504 

Rutter  v.  Fallis,  5  Sandf .  (N.  Y.)  610 493 

Ryan  v.  Lynch,  68  111.  160 230,  278 

Safford  v.  People,  85  111.  558 ;  5  Cent.  L.  J.  384  ;  17  Albany  Law  J.  209    494,  506 

Sage  v.  Cent.  R.  R.  Co.  of  Iowa,  93  U.  S.  412 433 

v.  Railroad  Co.  96  U.  S.  712 635 

Sala  v.  City  of  New  Orleans,  2  Woods,  188 223,  292 

Salisbury  Mills  v.  Townsend,  109  Mass.  115 202 

Sampson  v.  Buffalo,  N.  Y.  &  Phil.  Ry.  Co.  13  Hun  (N.  Y.),  280;  6  N.  Y. 

Weekly  Dig.  74 603 

San  Antonio  v.  Mehaffy,  96  U.  S.  312 292 

Sandon  v.  Hooper,  6  Beav.  246         ........       533 

Sangamon  &  Morgan  R.  R.  Co.  v.  County  of  Morgan,  14  111.  163         .         .  157 

Sankey  Brook  Coal  Co.  in  re,  L.  R.  10  Eq.  381 103 

Savannah,  Griffin  &  North  Ala.  R.  R.  Co.  v.  Grant,  56  Ga.  68     .         .         .  588 
Scott  v.  Clinton  &  Springfield  R.  R.  Co.  6  Biss.  529         .         .        147,  157,  171 

v.  Colburn,  26  Beav.  276 20 

v.Elmore,  10  Hun  (N.  Y.),  68 493 

Screven  v.  Clark,  48  Ga.  41 495 

Sea  Ins.  Co.  v.  Stebbins,  8  Paige  (N.  Y.),  565 478 

Searle  v.  Adams,  3  Kans.  515 336 

Searles  v.  Jacksonville,  Pensacola  &  Mobile,  K.  R.  Co.  2  Woods,  621       441,  487 

Secombe  v.  Milwaukee  &  St.  Paul  Co.  2  Dill.  469 655 

Secor  v.  Toledo,  Peoria  &  Warsaw  Ry.  Co.  7  Biss.  513  .         .         .        505,  536 

Sedgewick  v.  Mench,  6  Blatchf.  156 484 

Selma  &  Gulf  R.  R.  Co.  ex  parte,  45  Ala.  696         ...  232,  276 

Selma,  Rome  &  Dalton  R.  R.  Co.  v.  Harbin,  40  Ga.  706      .         .         .         .418 
Serrell  v.  Derbyshire,  &c.  Ry.  Co.  9  C.  B.  811 ;  10  C.  B.  910  .        .        .      194 

Sewall  v.  Braincrd,  38  Vt.  364 322,  327,  338,  638 

Sevbel  v.  National  Currencv  Bank,  54  N.  Y.  288  ;  2  Daly,  383        .       207,  284 

Seybert,  v.  City  of  Pittsburg,  1  Wall.  272 230 

Seymour  v.  Canandaigua  &  Niagara  Falls  R.  R.  Co.  25  Barb.  (N.  Y.) 

284  ;  .S\  C.  14  Dow.  Pa.  531  .         .  .         .129,  130,  132 

v.  Milford  &  Chillicothe  Turnpike  Co.  10  Ohio,  470  .         .         .       423 

Shamokin  Valley  EL  R.  Co.  v.  Livermore,  17  Pa.  St.  465    .        .        .  104,  1-59 

Sbarpless  ».  Mayor,  &c.  of  Phila.  21  Pa.  St.  147      ....      224,227 

Shaw  v.  Bill,  95  U.  S.  10 124,180,217,422 

r.  Norfolk  County  K.  R.  Co.  r,  Gray  (Muss.),  162  .         14,  876,  401,  188 
v.  Spencer,  100  Mass.  882  ;  l  Am. 'it.  1 15 202 


TABLE    OF   CASES    CITED. 


Shawnee  County  v.  Carter,  2  Kans.  115 
Sheboygan  County  p.  Parker,  3  Wall.  93     .        .        . 
Shepley  v   Atlantic  &  St.  Lawrence  R.  R.  Co.  55  Me.  395 
Sherrard  v.  Lafayette  County,  3  Dill.  236    . 

Shields  v.  Ohio,  95  U.  S.  319 

Shirk  v.  Pulaski  County,  4  Dill.  209    ._      . 

Shoemaker  v.  Goshen  Township,  14  Ohio  St.  569    . 

Shrewsbury  &  Birmingham  Ry.  Co.  v.  Northwestern  Ry.  Co 

Silliman  v.  Fredericksburg,  Orange  &  Charlottesville,  R.  R.  Co.  2  7  Gratt. 

(Va.)  119 

Skinner  v.  Maxwell,  US  X.  C.  400 

Slack  p.  Maysville  &  Lexington  R.  R.  Co.  13  B.  Mon.  (Ky.)  1 
Smallhouse  v.  Kentucky  &  Mon.  Gold  &  Silver  Mining  Co*.  2  Mon.  T.  443 
Smead  p.  Indianapolis,  Pittsburg  &  Cleveland  R.  R.  Co.  11  Ind.  104 


SECTION 

283 

.  207,  317 

.  3,  11,  14,  18,  401 

.  230 

415 

.   283 

2S0 

1 


6  ILL.  113 


25 

504 

227,  231 

580 

308, 


350,  353 

Smith  p.  Chicago  &  Northwestern,  R.  R.  Co.  18  Wis.  17  .         .       654,  655 

v.  Cork  &  Bandon  Ry.  Co.  Ir.  R.  3  Eq.  356  ;  Ir.  R.  5  Eq.  65     .  .  620 

v.  County  of  Clark,  54  Mo.  5S         .  .  272,  274,  277,  291,  292,  321 

v.  Eastern  R.  R  Co.  124  Mass.  154 115,556 

v.  Eureka  Flour  Mills  Co.  6  Cal.  1 306 

v.  Gower,  2  Duv.  (Ky.)  17  ;  3  Mete.  (Ky.)  171         .         .         .16,  632 

v.  Johnson,  3  H.  &  N.   222 353 

v.  Sac  County,  11  Wall.  139 199 

v.  Tallapoosa  County,  2  Woods,  574 292,  334 

Societv  for  Savings  v.  City  of  New  London,  29  Conn.  174  .  .  .  227,  292 

Solomons  v.  Laing,  12  Beav.  339 350 

Souter  v.  La  Qrosse  &  Milwaukee  R.  R.  Co.  Woolworth,  49  521 

South  Carolina  Railroad  in  re,  11  Chicago  Legal  News,  8  464 

South  Yorkshire  Ry.  &c.  Co.  v.  Great  Northern  Ry.  Co.  9  Exch.  55  .         .1 
Special  Bank  Commissioners  v.  Franklin  Inst,  for  Savings,  11  R.  I.  557  .       528 
Spencer  v.  Pierce,  5  R.  I.  63        .         .         .         .         .         .         .         .         .332 

Spooner  v.  Holmes,  102  Mass.  503  ;  3  Am.  R.  502  .         207,  216,  320,  337 

Sprague  v.  Hartford,  Prov.  &  Fhhkill  R.  R.  Co.  50  R.  I.  233  .         .         .       407 

v.  Smith,  29  Vt.  421 510,  511,  556 

v.  Steam  Navigation  Co.  52  Me.  592 118 

Stanton  v.  Alabama  &  Chattanooga  R.  R.  Co.  2  Woods,  506 ;  S.  C.  lb.  523 

214,  215,  514,  535,  539,  545 

Starin  v.  Town  of  Genoa,  23  N.  Y.  439 230.  291,  297 

Stark  Bank  v.  United  States  Pottery  Co.  34  Vt.  144 350 

State  v.  Bank  of  Md.  6  G.  &  J.  (Md.)   205 653 

v.  Binder,  38  Mo.  450 269 

v.  Bissell,  4  Greene  (Iowa),  328 240 

v.  City  of  Madison,  7  Wis.  688 223 

v.  Consolidation  Coal  Co.  46  Md.  1 2,  44 

v.  County  Court  of  Daviess  County,  64  Mo.  30  .  .  .         .    268,  273 

v.  County  Court  of  Sullivan  County,  51  Mo.  522     ....        274 
v.  County  of  Wapello,  13  Iowa,  388    .......  240 

v.  Curators  State  University,  57  Mo.  178 249 

u.  Del.,  Lackawanna  &  Western  R.  R.  Co.  30  N.  J.  L.  473        .         .  407 

v.  Greene  County,  54  Mo.   540 272,  274 

v.  Linn  County  Court,  44  Mo.  504 276 

v.  Macon  County  Court,  41  Mo.  453 274 

v.  Mavor  of  St.  Joseph,  37  Mo.  370 269 

v.  McKay,  43  Mo.  594 405 

t\  Mexican  Gulf  Ry.  Co.  3  Rob.  (La.)  513         .         .         .  3,  122 

v.  New  Orleans  &  Nashville  R.  R.  Co.  4  Rob.  (La.)  231        .         .122 
v.  Osawkee  Township,  14   Kans.  418  .....  223 

v.  Rives,  5  Ired.  (N.  C.)  L.  297 423,  653 

v.  Saline  County,  51  Mo.  350 230,  274 

xxxvi 


TABLE   OF   CASES   CITED. 


SECTION 

.  291 

171 
.  305 

272 
.  247 

257 
.   280 

303 
.  239 

308 
.  233 

398 

.   242 

149,  407 

.  383 


State  v.  Saline  County  Court,  48  Mo.  390 

v.  Severance,  55  Mo.  378 

v.  Shortridge,  56  Mo.  126 

v.  Sullivan  County,  5  7  Mo.  522 

v.  Town  of  Clark,  23  Minn.  422 

v.  Trustees  of  Union  Township,  8  Ohio  St.  394     .... 
i\  Van  Home,  7  Ohio  St.  327  . 

v.  Walker,  7  Cent.  L.  J.  390 

v.  Wheadon,  39  Ind.  520 

State  Bank  v.  U.  S.  Pottery  Co.  34  Vt.  144 

State  of  Arkansas  v.  Little  Rock,  Miss,  Eiver  &  Tex.  Ey.  Co.  31  Ark.  701 

State  of  Florida  v.  Anderson,  91  U.  S.  667 

State  of  Louisiana  v.  City  of  Shreveport,  27  La.  Ann.  623 
State  of  Maryland  v.  Northern  Cent.  By.  Co.  18  Md.  193 

State  of  Missouri  v.  Hays,  50  Mo.  34 

State  of  Ohio  v.  Board  of  Education  of  Perrysburg  Township.  27  Ohio  St 

96 • 

State  Treasurer  v.  Somerville  &  Easton  E.  E.  Co.  28  N.  J.  L.  21 
Steamboat  Co.  v.  McCutcheon,  13  Pa.  St.  13  . 
Steele  v.  Harmer,  14  M.  &  W.  831  ;  4  Ex.  1 

r.  Sturgis,  5  Abb.  (N.  Y.)  Pr.  442 
Stein  v.  Mayor,  &c.  of  Mobile,  24  Ala.  591 
Steines  v.  Franklin  County,  48  Mo.  167;  8  Am.  E.  87  . 
Stephens  v.  Benton,  1   Duv.  (Ky.)  112 

Stevens  v.  Buffalo  &  N.  Y.  City  E.  E.  Co.  31  Barb.  (N.  Y.)  590 
V.  Davison,  18  Gratt.  (Va.)  819       . 
v.  Mid-Hants  Ey.  Co.  L.  E.  8  Ch.  App.  1064      . 
v.  N.  Y.  &  Oswego  Midland  E.  E.  Co.  13  Blatchf.  104 

412 

v.  South  Devon  Ev.  Co.  13  Beav.  48  ;  9  Hare,  313     . 
r.  Watson,  4  Abb*  (N.  Y.)  App.  Dec.  302     . 

Stewart's  Appeal,  56  Pa.  St.  413 

72  Pa.  St.  291 

Stewart  v.  Board  of  Supervisors  of  Polk  County,  30  Iowa,  9    . 

V.  Jones,  40  Mo.  140 

St.  Germans  v.  Crystal  Palace  Ev.  Co.  L.  E.  11  Eq.  568  ;  19  "W 

St.  John  o.  Erie  Ev.  Co.  10  Blatchf.  271;  22  Wall.  136        . 

St.  Joseph   &  Denver   City  E.  E.  Co.  v.  Buchanan   County   Court,  39  Mo. 

485 

v.  Smith,  19  Kans.  225;    6  Eeporter, 
331  ;  6  Cent.  L.J.  59    .  501,  507 

St.  Joseph  Township  v.  Eogers,  16  Wall.  644  226,  227,  269,  278,  283,  291, 

1  292,  293 

St.  Louis,  Alton  &  Terre  Haute  E.  E.  Co.  r.  Miller,  43  111.  199 
Stockton  &  Yi-alia  R.  R.  Co.  v.  City  of  Stockton,  51  Cal.  328 
Stoddard  v.  Kimball,  6  Cush.  (Mass.)  469    . 

Stoke-  i7.  County  of  Scott,  10  Iowa,  166 

St.  Paul  &  Pacific  R.  It.  Co.  v.  Parcher,  11  Minn.  297 
Strand  Music  Hall  Co.  in  re  3  De  G.,  J.  &  S.  147     . 
Stratford  &  Huron  Ely.  Co.  in  re,  88  Q.  15.  Upper  Canada  112 
Straus  v.  Eagle  Ins.  Co.  of  Cincinnati,  5  Ohio  St.  59 
Smart  v.  James  River  &  Kanawha  Co.  •_' l  Gratt.  (Va.)  294 
Sturgea  <••  Knapp,  SI  Vt.  1  ;  33  Vt.  486  ;  36  Vt.  439     . 
Sturtevanl  '■■  City  of  Alton,  :;  McLean,  393 
Sullivan  r.  Portland  &  Kennebec  R.  R.  Co.  94  U.  S.  806 
Supervisors  '•.  Schenck,  5  Wall.  772    . 

v.  United  State-,  18  Wall.  71      .        .         . 
Supervisors  of  County  of  Portage  v.  Wisconsin  Cent.  R.  R.  Co.  121   Mass. 

4,;o 266,  278,  278 

x  \  \  v  i  i 


288,  302 

.   164 

288 

.  306 

.       493 

.   227 

268,  280,  294 

.  213 

164,  165 

.  457 

385,  614 

5.  C.  lb. 

.  571,  638 

620 

.   122,  145 

2 

.  653 

2-10 

423 

611 

624 


R. 


3, 
584 
.  622, 


227 


657 

273 

208 

240 

6, 

660 
75 

273 

5 

24 

357, 

864, 

367 
288 

612, 

655 

.  280, 

288, 

294 

803 

805 

TABLE   OF   CASES    CITED. 

SECTION 

Susquehanna  Canal  Co.  v.  Bonham,  9  W.  &  S.  (Pa.)  27      .         .3,  159,  423 
Sutherland  v.  Lake  Superior  Ship   Canal,   R.  R.  &  Iron  Co.  1    Cent.   L. 

J.  127 443,  690,  G91 

SutlifE  v.  Cleveland  &  Mahoning  R.  R.  Co.  24  Ohio  St.  147        .        .  97 

Sweatt  v.  Boston,  Hartford  &  Erie  R.  R.  Co.  3  Cliff.  339         .         .  685 

Sweet  v.  Hulbert,  51  Barb.  (N.  Y.)  312 230 

Sykes  v.  Mayor,  &c.  of  Columbus,  5  Reporter,  501   .         .         .       226,   230,  278 

Taber  v.  Cincinnati,  Logansport  &  Chicago  Rv.  Co.  15  Ind.  459  .      12,  334 

Taft  v.  Hartford,  Providence  &  Fishkill  R.  R.  Co.  8  R.  I.  310        .       620,  624 

Tagart  v.  Northern  Cent.  Ry.  Co.  29  Md.  557 418 

Taylor  v.  Atlantic  &  Great  Western  Ry.  Co.  55  How.  (N.  Y.)  Pr.  275     .       387 
v.  Burlington,  Cedar  Rapids  &  Minn.  Ry.  Co.  11  W.  Jur.  337;  S.  C. 

4  Cent.  L.  J.  536;  4  Dill.  571 143,577,578 

v.  Columbian  Ins.  Co.  14  Allen  (Mass.),  353     .         .         .         .  483,  492 
v.  Commissioners  of  Ross  County,  23  Ohio  St.  22  257 

v.  Taylor,  10  Minn.  107 269 

Ten  Evck  v.  Mayor  of  Keokuk,  15  Iowa,  486 240 

Terrell  v.  Allison,  21  Wall.  289 442 

Thayer  v.  Montgomery  County,  3  Dill.  389 .337 

Third  Nat.  Bank  v.  Eastern  R.  R.  Co.  122  Mass.  240  .         .         .         .  618,  692 

Thomas  v.  Armstrong,  7  Cal.  286 423 

v.  City  of  Port  Huron,  27  Mich.  320 246 

v.  County  of  Scotland,  3  Dill.  7 272 

Thompson  v.  City  of  Peru,  29  Ind.  305 231 

v.  Erie  Ry.  Co.  42  How.   (N.  Y.)  Pr.  68;  S.  C.  11  Abb.  Pr. 

(N.  Y.)  188 9,  619 

v.  Scott,  22  Int.  Rev.  Rec.  376  ;  4  Dill.  508        ...  508 

v.  Universal  Salvage  Co.  1  Ex.  694 306 

v.  Van  Vechten,  27  N.  Y.  568 164 

Thomson  v.  Lee  County,  3  Wall.   327        222,  226,  276,  278,  284,  317,  320,  337 

Thurman  v.  Cherokee  R.  R.  Co.  56  Ga.  376 512 

Tippetts  v.  Walker,  4  Mass.  595 423 

Titus  v.  Ginheimer,  27  111.  462 157 

v.  Mabee,  25  111.  257 111,157 

Toledo,  Wabash  &  Western  Ry.  Co.  v.  Beggs,  85  111.  80     .         .         .         .517 

Tomlinson  v.  Branch.  15  Wall.  460 272 

Town  of  Bennington  u.  Park,  50  Vt.  178 280,282 

Town  of  Cicero  v.  Clifford,  53  Ind.  191 320 

Town  of  Coloma  v.  Eaves,  92  U.  S.  484        ..         .  226,  291,   292,  293,  294 
Town  of  Concord  v.  Portsmouth  Savings  Bank,  92  U.  S.  625  .       271,  274,  275, 

291,  293,  295 
Town  of  Duanesburgh  v.  Jenkins,  57  N.  Y.  177  .  .  .  .  270,  278 

Town  of  Dundas  v.  Desjardins  Canal  Co.  17  Grant  (Upper  Can.  Ch.),  27      .   78 

Town  of  Eagle  v.  Kohn,  84  111.  292 267,288,296 

Town  of  East  Lincoln  v.  Davenport,  94  U.  S.  801         .         .  271,  272,  288 

Town  of  Genoa  v.  Woodruff,  92  U.  S.  502 332 

Town  of  Hackettstown  v.  Swackhamer,  37  N.  J.  L.  191       .         .         .         .283 

Town  of  Keithsburg  v.  Frick,  34  111.  405 278 

Town  of  Pana  v.  Lippincott,  10  Chicago  Leg.  News,  205     ....  226 
Town  of  Platteville  v.  Galena  &  Southern  Wis.  R.  R.  Co.  43  Wis.  493     .       266, 

273 
Town  of  Queensbury  v.  Culver,  19  Wall.  83         ...         .   230,  300,  338 

Town  of  So.  Ottawa  v.  Perkins,  94  U.  S.  260 226 

Town  of  Venice  v.  Murdock,  92  U.  S.  494 291,  292 

Township  of  Brock  v.  Toronto  &  Nipissing  Ry.  Co.  17  Grant   (Upper  Can- 
ada Ch.).  425 193 

Township  of  Burlington  v.  Beasley,  94  U.  S.  310 225 

Township  of  East  Oakland  v.  Skinner,  94  U.  S.  255 230 

xxxviii 


TABLE   OF   CASES   CITED. 

SECTION 

Township  of  Elmwood  v.  Marcy,  92  U.  S.  289 278 

Township  of  Pine  Grove  d.  Talcott,  19  Wall.  666  .  .  .  227,  229,  246 
Township  of  Rock  Creek  v.  Strong,  96  U.  S.  271     .         .       226,  267,  289,  292 

Traskw.  McGuire,  18  Wall.  391 660 

Trebilcock  v.  Wilson,  12  Wall.  687 3S3 

Troup's  Case,  29  Beav.  353 5 

Troy  &  Rutland  R.  R.  Co.  v.  Kerr,  17  Barb.  (N.  Y.)  581         ...  2 

Tucker  v.  City  of  Raleigh,  75  N.  C.  267 283 

v.  Fergusson,  22  Wall.  572 12 

Turgeau  v.  Brady,  24  La.  Ann.  348 476 

Twin-Lick  Oil  Co.  v.  Marbury,  91  U.  S.  587  .         .         .         .  22,  643,  644 

Tyrone  &  Clearfield  R.  R.  Co.  v.  Jones,  1  Weekly  Notes  of  Cases,  571  .606 
Tysen  v.  Wabash  Rv.  Co.  Chicago  Times,  July  28,  1878  .  .  .  462 
Tyson's  Reef  Co.  hire,  3  W.  H.  &  A.  B.  Cases  at  Law  (Vict.),  162  .         .  191 

Underbill  v.  Trustees  of  Sonora,  17  Cal.  172 337 

Union  Bank  of  Louisiana  v.  Marin,  3  La.  Ann.  34      ....  453 

Union  Pacific  IS.  R.  Co.  v.  Colfax  County,  4  Neb.  450     .         .         .         .       225 

v.  Commissioners  of  Davis  County,  6  Kans.  356      270, 

302. 
v.  Lincoln  County,  3  Dill.  300         .         .267,  268,  299 
v.  Merrick  County,  3  Dill.  359  .         .        267,  268,  299 
Union  Trust  Co.  v.  Rockford,  Rock  Island  &   St.  Louis  R.  R.  Co.  6  Biss. 

197 484 

v.  St.  Louis,  Iron  Mountain  &  Southern  R.  R.  Co.  4  Dill. 

114;  4  C.  L.  J.  585 459,461 

Union  Trust  Co.  of  N.  Y.  v.  Monticello  &  Port  Jervis  Ry.  Co.  63  N.  Y.  311 

329 

United  States  v.  County  Court  of  Vernon  County,  3  Dill.  281    .         .         .  302 

v.  County  of  Clark,  5  Reporter,  131  ....       301 

v.  County  of  Clark,  95  U.  S.  769  ;  96  U.  S.  211     .         .  303,  305 

v.  Jefferson  Countv,  6  Reporter,  486  ;   7  Am.  Law  Rec.  154 

300,  301 

v.  Kansas  Pacific  Ry.  Co.  4  Dill.  367 92 

v.  Louisville  &  Portland  Canal  Co.  4  Dill.  601   .         .         .       557 
v.  Mavor,  &c,  of  City  of  New  Orleans,  2  Woods,  230  .  303 

v.  Miller  County,  4  Dill.  233 301,  303 

v.  New  Orleans  R.  R.  Co.  12  Wall.  362     .         .         .       142,  151 

v.  Railroad  Co.  17  Wall.  322 222 

[v.  Silverman,  4  Dill.  224 304 

v.  Supervisors  of  Lee  County,  2  Biss.  77  ;  3  Wall.  327  .276 

v.  Union  Pacific  R.  R.  Co.  91  U.  S.  72      .         .         .         .   78,  92 

v.  Vernon  County,  2  Cent.  L.  J.  7  71      .         .         .         .         .  303 

United  States  Rolling  Stock  Co.  in  re,  55  How.  (N.  Y.)  Pr.  286     .        388,  414 

Upton  v.  Hubbard,  28  Conn.  274 492 

Vance  v.  City  of  Little  Rock,  30  Ark.  4  35  ....    300,303,304 

Van  Hostrup  v.  Madison  City,  1  Wall.  291 293 

Van   Keuren  v.  Cent.  IS.  IS.  Co.  of  N.  J.  38  N.  J.  L.  165;  S.  C.  13  Am. 

I!v.  Rep.  43 109 

Venlcr  v.  Town  of  Lima,  19  Wis.  280    .  ....       297 

Vermilye  v.  Adams  Express  Co.  21  Wall.  138 201,207 

Vermont  &  Canada  ES.  It.  Co.  v.  Vermont  Central  R.  IS.  Co.  50  Vt.  500  ; 

1  l  Am.  Railw.  R.  197        ....      453,  454,  459,  51-',  586,  539,  549 
Vermonl  &  Canada  IS.  R.  Co.  v.  Vermont  Cent.  IS.  IS.  Co.  46  Vt.  792      495, 

500 

v.  Vermonl  Cent.  R.  It.  Co.  ::i  Vt.  1    .        .569 

Vicksbnrg  &  Meridian  R.  It.  Co.  u  McCutchen,  r>2  Miss.  645         .        .       429 

Vilas  v.  Milwaukee  6c  Prairie  du  Cbien  Ry.  Co.  17  Wis.  497        .         .    654,  655 

8  \\'\ 


TABLE    OF   CASES    CITED. 


SECTION 

Virginia  v.  Chesapeake  &  Ohio  Canal  Co.  32  Md.  501;  35  Md.   1         198,   329, 

332,  336,  344,  638 
Virginia  &  Truckee  R.  R.  Co.  v.  Lyons  County,  6  Nev.  68  273 

Von  Hoffman  v.  City  of  Quincy,  4  Wall.  535 300 

Vose  v.  Bronson,  6  Wall.  452 386 

i).  Cowdrey,  49  N.  Y.  336 647 

r.  Reed,  1  Woods,  647 459,  471 


233 


74 

.  453 

227,  257 

.  579 

164 


14  W.  R. 
Pt 


l,  l 


611 
611 

302 
217 
132 

272,  292 


Waco  Tap  R.  R.  Co.  v.  Shirley,  45  Tex.  355;  13  Am.  Ry.  Rep, 
Wadhams  v.  Gay,  73  111.  415 

Walker  v.  Citv  of  Cincinnati,  21  Ohio  St.  14  ... 

v.  Miss.  Valley  &  Western  R.  R.  Co.  2  Cent.  L.  J.  481 
v.  Sherman,  20  Wend.  (N.  Y.)  656     . 
v.  Ware,  Hadham  &  Buntingford  Ry.  Co.  35  Beav.  52 

158 

v.  Ware,  Hadham  &  Buntingford  Ry.  Co.  11  Jur.  N.  S 
Walkley  v.  City  of  Muscatine,  6  Wall.  481  ... 

Wallace  ».  M'Connell,  13  Pet,  136 

Walsh  v.  Barton,  24  Ohio  St.  28 

Washburn  v.  Cass  County,  3  Dill.  251 

Washington,  Alexandria  &  Georgetown  R.  R.  Co.  v.  Alexandria  &  Wash- 
ington R.  R.  Co.  19  Gratt.  592 371 

Waterloo  v.  Sharp,  L.  R.  8  Eq.  501 307 

Watson  v.  Jones,  13  Wall.  679 485 

Watt  v.  Hestonville,  Mantua  &  Fairmount  Passenger  R.  R.  Co.  1   Brew. 

(Pa.)  418;  6  Phila.  386 404 

Weaver  v.  Barden,  49  N.  Y.  286  ;  3  Lans.  338 202 

Webb  v.  Com'rs  of  Heme  Bay,  L.  R.  5  Q.  B.  64  2 190 

Weetjen  v.  St,  Paul  cSt  Pacific  R.  R.  Co.  4  Hun  (N.  Y),  529  .  139,  358,  362 
Weismer  v.  Village  of  Douglas,  53  N.  Y.  128;  64  lb.  91;  4  Hun,  201;  13 

Am.  R.  480 224,  228 

Welch  v.  Pa^e,  47  N.  Y.  143 198,  200,  284 

Wellsborouoh  &  TiogaPlank  Road  Co.  v.  Griffin,  57  Pa.  St.  417       520,  654,  656 

West  Branch  Bank  v.  Chester,  11  Pa.  St.  282 625 

West  Cornwall  Ry.  Co.  v.  Mowatt,  12  Jur.  407 19 

Westermann  v.  Cape  Girardeau  County,  7  Cent.  L.  J.  353  .  249,  269,  293 
Western  Pennsylvania  R.  R.  Co.  v.  Johnston,  59  Pa.  St.  290  .  .  .633 
Western  Saving  Fund  Soc.  of  Phila.  v.  City  of  Phila.  31   Pa.  St.  175;  S. 

C.  lb.  185 224,271,300 

Western  Union  R.  R.  Co.  v.  Smith,  75111. 496     .  .         .         .         .  419 

Western  Union  Telegraph  Co.  v.  Atlantic  &  Pacific  Telegraph  Co.  7  Biss. 

367 -       .        499,568 

Weymouth  i\  Washington,  Georgetown  &  Alexandria  R.  R.  Co.  1  McArthur 

CD.  C),  19       .     ■ 408 

Whitaker  v.  Hartford,  Providence  &  Fishkill  R.  R.  Co.  8  R.  1.  47  .  .  332 
White  v.  Carmarthen,  &c.  Ry.  Co.  1  H.  &  M.  786  ;  1   Cox's  Joint  Stock 

Cases,  112;  33  L.J.  Ch.  93 21 

v.  Syracuse  &  Utica  R.  R.  Co.  14  Barb.  (N.  J.)  559  ...  350 

v.  Vt.  &Mass.  R.  R.  Co.  21   How.  575         .         .         .         198,204,285 

Whitehead  v.  Vineyard,  50  Mo.  30 81 

White  Mountains  R.  R.  v.  White  Mountains  R.  R.  50  N.  H.  50  632,  642,  652 
Whiteside  v.  Bellchamber,  22  Upp.  Can.  (C.  P.)  241  .         .         .         .       1 

White  Water  Valley  Canal  Co.  v.  Vallette,  21  How.  414  .         ■     11,  14,  75 

Whitewell  v.  Warner,  20  Vt.  425 85 

Whiting  v.  Sheboyo-an  &  Fond  du  Lac  R.  R.  Co.  25  Wis.  167  224,  230,  266 

Wickes  v.  Adirondack  Co.  2  Hun  (N.  Y.),  112        .         .  198,  207,  208 

Wickham  v.  New  Brunswick  &  Canada  Ry.  Co.  L.  R.  1  P.  C.  64  ;  1  Cox's 

Joint  Stock  Cas.  519 100,  187 

Widener  v.  R.  R.  Co.  1  Weekly  Notes  of  Cases,  472      .         .         .         .       399 
xl 


TABLE    OF   CASES    CITED. 

SECTIOX 

Wilder  v.  Shea,  13  Bush  (Ky.),  128  .  .  ...  428,430 
Wildv  o.  Mid-Hants  Ry.  Co.  16  W.  R.  409;  18  L.  T.  (N.  S.)  73  .  613 
Wiley  v.  Silliman,  62  111.  170 278 

Wilkinson  v.  Fleming,  30  111.  353 370 

Williams  v.  Avlesburv  &  Buckingham  Ry.  Co.  21  W.  R.  819    .         .         .611 
v.  Missouri," Kansas  &  Texas  Rv.  Co.  3  Dill.  26  7     .  .  .       409 

v.  Smith,  2  Hill  (N.  Y.),  301 208 

v.  Town  of  Duanesburgh,  66  N.  Y.  129  .         .         .         .        229,  278 

Williamson  v.  City  of  Keokuk,  44  Iowa,  88 226,  230 

v.  New  Albany,  &c.  R.  R.  Co.  1  Biss.  198     .        117,458,459,463, 

466,  480 
v.  N.  J.  Southern  R.  R.  Co.  26  N.  J.  Eq.  398;  28  lb.  277;  29 

lb.  311;  15  Am.  Railw.  R.  572  .  .      Ill,  122,  138,  142,  144, 

163,  164,  557 
Willink  v.  Morris  Canal  &  Banking  Co.  3  Green  (N.  J.),  Ch.  377  .        126,  142 

Willittsr.  Waits,  25  N.  Y.  577 483,492 

Wilmer  v.  Atlanta  &  Richmond   Air  Line   Ry.  Co.  2  Woods,  409  ;   S.  C. 

lb.  447 413.415,434,452,467,485,487,488,625 

Wilmington  &  Baltimore  R.  R.  Co.  v.  Woelpper,  64  Pa.  St.  366         .         .122 

Wilmington  Ry.  Co.  v.  Reed,  13  Wall.  268 18 

Wilson  v.  Boyce,  92  U.  S.  320 ;  S.  C.  2  Dill.  539         .         .         .         .       78,  SO 

v.  Garroutte,  7  Cent.  L.  J.  29 271,  272,  274 

Winch  t\  Birkenhead,  &c.  Ry.  Co.  5  De  G.  &  S.  562;  7  Railw.  Cas.  384    .       1 

Winchester  v.  Mid-Hants  Ry.  Co.  L.  R.  5  Eq.  17 611 

Winchester  &  Strasburg  R.  R.  Co.  v.  Colfelt,  2  7  Gratt.  (Va.)  777        .         .429 

Winn  v.  City  of  Macon,  21   Ga.  275 227 

Winslow  v.  Merchants'  Ins.  Co.  4  Met.  (Mass.)  306 121 

Winston  v.  Tenn.  &  Pacific  R.  R.  Co.  57  Tenn.  60;  15  Am.  Railw.  R.  237       268 
Winter  v.  Iowa,  Minn.  &  N.  Pacific  Ry.  Co.  2  Dill.  487       .  .         .  685,  689 

Wiswall  v.  Sampson,  14  How.  52 4S5,  500 

Witherspoon  v.  Texas  Pacific  R.  R.  Co.  48  Tex.  309  ....  680 

Wood  o.  Bedford  &  Bridgeport  R.  R.  Co.  8  Phila.  (Pa.)  94      .         .         .  3 

v.  Goodwin,  49  Me.  260 365,  413 

v.  Lawrence  County,  1  Black,  386 317 

v.  Truckee  Turnpike  Co.  24  Cal.  474 423 

Woodman  v.  York  &  Cumberland  R.  R.  Co.  45  Me.  207  .         .        115,118 

Woodruff  v.  Trapnall,  10  How.  190 355 

Woods  v.  Lawrence  County.  1  Black,  386 291 

Woodson  v.  Murdock,  22  Wall.  351 78,  82 

Worcester  Cm  Exchange  Co.  in  re,  3  De  G.,  M.  &  G.  180     .         .         .       191 

Wright  v.  Bundy,  11  Ind.  398 84 

v.  -Milwaukee  cSc  St.  Paul  R.  R.  Co.  25  Wis.  46  .         .         .         .       655 
v.  Ohio  &  Miss.  K.  R.  Co.  1  Dis.  (Ohio)  465  ....  338 

Yeager  v.  Wallace,  44  Pa.  St.  294 495 

York  &  Cumberland  R.  R.  Co.  in  re,  50  Me.  552 71 

Yomvr  v.  Montgomery  &  Eufaula  R.  R.  Co.  2  Woods,  606       .        349,  383,  392 

439,  443,  487,  490 
Youngman  v.  Elmira  &  Williamsport  R.  R.  Co.  65  Pa.  St.  278    .     106,  159,  399 

Zabriskie  v.  Cleveland,  Columbus  &  Cincinnati  R.  R.  Co.  23  How.  381        .  191, 

193,  198,  350,  352 

Zimmer  v.  State,  30  Ark.  677 4  15 

xli 


LAW  OF   RAILROAD    SECURITIES. 


\ 


.  >  > 


ERRATUM. 

Page  456,  third  line  from  top,  substitute  "  and"  for  "or.1 


c^^tt^Q^ 


THE    LAW   OF  RAILROAD 


AND  OTHER  CORPORATE  SECURITIES. 


CHAPTER  I. 


POWER     OF    CORPORATIONS     TO     MORTGAGE    THEIR     PROPERTY 
AND    FRANCHISES. 


I.  When  legislative  authority  is  essential 
to  a  mortgage  of  corporate  property 
and  franchises,  1-25. 


II.  Statutes  authorizing  railroad  compa- 
nies to  mortgage  their  property  and 
franchises,  26-67. 


I.    WJien  Legislative  Authority  is  essential  to  a  Mortgage  of  Cor- 
porate Property  and  Franchises^ 

1.  It  is  a  settled  doctrine  of  the  English  law  that  a  corpora- 
tion like  a  railway  company,  created  for  the  performance  of  im- 
portant public  functions,  and  for  that  purpose  endowed  with  special 
rights  and  privileges,  cannot,  without  legislative  authority,  trans- 
fer these  rights  and  privileges,  and  thus  divest  itself  of  its  means 
of  discharging  its  public  duties.1  "  I  agree,"  said  Lord  Cranworth 
in  the  House  of  Lords,  delivering  the  judgment  in  the  case  first 
cited  below,  "  to  the  proposition  urged  by  the  appellants,  that 
primd  facie  corporate  bodies  are  bound  by  all  contracts  under  their 
common  seal.  When  the  legislature  constitutes  a  corporation,  it 
gives  to  that  body,  primd  facie,  an  absolute  right  of  contracting. 
But  this  primd  facie  right  does  not  exist  in  any  case  where  the 
contract  is  one  which,  from  the  nature  and  object  of  incorporation, 

1  Shrewsbury  &  Birmingham  Ity.  Co.  Railw.  Cas.  643;  East  Anglian  Ry.  v. 
v.  Northwestern  Ry.  Co.  6  H.  L.  113;  Eastern  Counties  Ry.  Co.  11  C.  B.  775; 
Winch  v.  Birkenhead,  &c.  Ry.  Co.  5  De  7  Railw.  Cas.  150;  Richc  v.  Ashbury  Ry. 
G.  &  S.  562;  S.  V.  7  Railw.  Cas.  384;  Carriage  Co.  L.  R.  II  Kx.  224,  264 ;  Bag- 
South  Yorkshire  By.  &c.  Co.  v.  Great  shaw  v.  Eastern  Union  Ry.  Co.  7  Hare, 
Northern  Ry.  Co.  'J  Kx.  55,  84;  Great  114;  2  Mac.  &  G.  389 ;  Whiteside  v.  Bell- 
Northern  Ry.  Co.  v.  Eastern  Counties  Ry.  chamber,  22  Upp.  Can.  (C.  1'.)  241. 
Co.  21  L.  J.  Ch.   8,  37;  <J  Hare,  306;  7 

1  1 


§  2.]  POWER    OF   CORPORATIONS. 

the  corporate  body  is  expressly  or  impliedly  prohibited  from  mak- 
ing ;  such  a  contract  is  said  to  be  ultra  vires;  and  the  question 
here,  as  in  similar  cases,  is,  whether  there  is  anything  on  the  face 
of  the  act  of  incorporation  which  expressly  or  impliedly  forbids 
the  making  of  the  contract  sought  to  be  enforced." 

To  like  effect  Lord  Justice  Cairns,  in  a  recent  important  case 
upon  this  subject,  said:  "  When  parliament,  acting  for  the  pub- 
lic interest,  authorizes  the  construction  and  maintenance  of  a  rail- 
way, both  as  a  highway  for  the  public  and  as  a  road  on  which  the 
comj^any  may  themselves  become  carriers  of  passengers  and  goods, 
it  confers  powers  and  enforces  duties  and  responsibilities  of  the 
largest  and  most  important  kind,  and  confers  and  enforces  them 
upon  the  company,  which  parliament  has  before  it,  and  upon  no 
other  body  of  persons."  1 

It  is  also  the  settled  rule  that  the  permanent  way  and  fixed 
plant  of  railway  companies  cannot,  without  legislative  authority, 
be  mortgaged  in  the  ordinary  way  so  as  to  give  the  mortgagees 
the  right  to  enter  upon  the  property  or  to  interfere  with  the  use 
and  possession  of  it  by  the  companies  chartered  to  use  it ;  and 
other  corporations  having  public  duties  are  under  the  same  inabil- 
ity respecting  the  mortgaging  of  their  permanent  property.2 

2.  Such  also  may  be  considered  the  settled  law  of  the  Amer- 
ican courts.  —  The  grant  of  the  franchise  to  be  a  corporation,  with 
the  grant  to  build  and  work  a  railroad  and  take  tolls  from  the 
public,  is  attended  with  an  obligatio'n  on  the  part  of  the  company 
to  exercise  the  franchise  for  the  public  benefit.  The  franchise 
and  the  attendant  privileges  are  confided  to  a  particular  political 
person,  and  are  not  a  subject  of  sale  and  transfer  to  any  other 
person  or  body  corporate,  except  by  the  authority  of  some  posi- 
tive provision  of  law.3     The  function,  however,  which  is  not  as- 

i  Gardner  v.  London,  Chatham  &  Do-  Barb.  (N.  Y.)  581  ;  Black  v.  Del.  &  Rari- 

ver  Ry.  Co.  L.  R.  2  Ch.  App.  201,  212.  tan  Canal  Co.  22  N.  J.  Eq.  130,  399  ;    S. 

2  Gardner     v.     London,     Chatham     &  C.  24  lb.  455  ;    Stewart's  Appeal,  56  Pa. 

Dover  Rj.   Co.   L.    R.  2  Ch.  App.  201  ;  St.  413  ;  State  v.  Consolidation   Coal   Co. 

Panama,     New     Zealand     &    Australian  46  Md.  1,  10  ;    Hays  v.  Ottawa,   Oswego. 

Royal  Mail  Co.  in  re,  L.  R.  5  Ch.  321,  per  &  Fox  River  Valley  R,  R.  Co.  61  111.  422  ; 

Gifford   L.  J.;    Myatt  v.  St.  Helen's,  &c.  Arthur  v.  Commercial  and  Railroad  Bank 

Ry.   Co.  2   Q.  B.  364;    Hart  v.  Eastern  of  Vieksburg,  9   Sm.   &  M.  (Miss.)  394, 

Union  Ry.  Co.  7  Ex.  246.  431.     See  McAllister  v.  Plant,   54   Miss. 

8  Troy  &  Rutland  R.  R.  Co.  v.  Kerr,  17  106,  119. 

2 


LEGISLATIVE    AUTHORITY    TO   MORTGAGE   ESSENTIAL.  [§  3. 

signable,  is  the  corporate  existence  the  right  of  being  a  body 
politic  with  rights  of  succession,  of  acquiring  and  conveying  prop- 
erty, and  of  suing  and  being  sued  in  its  corporate  name.  The 
right  to  build,  own,  and  manage  a  railroad,  and  to  take  tolls  thereon, 
if  given  to  a  natural  person,  might  be  assigned  by  him ;  for  there 
is  nothing  in  the  nature  of  such  a  privilege  inconsistent  with  a 
sale  and  transfer  to  another.  But  a  corporation  created  for  a 
public  object  can  neither  transfer  its  franchise,  nor,  it  would  seem, 
disable  itself  from  performing  its  public  duties,  by  conveying  its 
track  and  right  of  way,  or  other  property  which  is  essential  to  its 
fulfilling  the  duties  imposed  upon  it  by  its  charter.1 

3.  Whether  a  railroad  corporation  can  without  legislative 
authority  transfer  its  franchises,  by  way  of  mortgage,  is  an 
inquiry  to  which  the  same  answer  must  be  made,  for  the  same 
reason  that  these  privileges  are  personal  to  the  grantee.  Inas- 
much as  every  mortgage  may  in  the  end  result  in  an  absolute 
transfer  of  the  mortgaged  property,  it  follows  that  such  a  corpo- 
ration cannot  without  special  authority  mortgage  its  property  and 
give  to  the  mortgagee,  upon  default,  the  right  to  exercise  its  pub- 
lic duties  and  functions,  or  the  power  to  sell  and  convey  these 
privileges  to  another.2 

In  a  case  before  the  Supreme  Court  of  Massachusetts,3  Mr.  Jus- 
tice Hoar  forcibly  states  the  law  :  "  In  the  case  of  a  railroad  com- 
pany, created  for  the  express  and  sole  purpose  of  constructing, 
owning,  and  managing  a  railroad  ;  authorized  to  take  land  for  this 
public  purpose  under  the  right  of  eminent  domain  ;  whose  powers 
are  to  be  exercised  by  officers  expressly  designated  by  statute ; 

1  Richards  v.  Merrimack  &  Conn.  Iliver  R.  Co.  21  Law  Reporter,  138  ;  Daniels  v. 
R.  It.  Co.  44  X.  H.  127,  per  Bell,  C.  J.  Hart,  1 1  8  Mass.  543  ;  Wood  v.  Bedford  & 

2  Carpenter  v.  Black  Hawk  Gold  Min-  Bridgeport  R.  R.  Co.  8  Phila.  (Pa.)  94; 
ing  Co.  65  N.  Y.  43,  50  ;  Pullan  v.  Cin-  State  v.  Mexican  Gulf  Ry.  Co.  3  Rob. 
cinnati  &  Chicago  Air  Line  R.  R.  Co.  4  (La.)  513. 

Bis-.  :;:>;  Susquehanna  Canal  Co.  v.  Bon-  This  doctrine  is  substantially  denied  in 

ham,    '.»    W.    &    S.    (Pa.)    27;    Pierce    v.  Maine.     Shepley  v.   Atlantic  &  St.  Law- 

Emery,  -vj.  X.  II.  484;  Arthur  ».  Commcr-  rence  R.  R.  Co.  55  Mc.  395;  Kennebec  & 

cial   &  Railroad  Bank  of  Vieksbur<;,  9  S.  Portland  R.  R.  Co.  v.  Portland  &  Kenne- 

&  M.  (Miss.)  394;  Atkinson  v.  Marietta  &  bee  R.  R.  Co.  59  Me.  9,  23.     See  §  18. 

Cincinnati  R. R.  Co.  15  Ohio  St.  21  ;  Stew-  3  Commonwealth   v.    Smith,    10    Allen 

art  v.  Jones,  40  Mo.  140;  New  Orleans,  (Mass.), 448;  and  Bee  Bast  Boston  Freight 

Jackson  &  Great  Northern  It.  It.  Co.  v.  R.  K.  Co.  v.  Eastern  R.  It.  Co.  13  lb.  vi-z  ■ 

Harris,  27  Miss.  517;  Hall  v.  Sullivan  It.  Richardson  v.  Sibley,  11  lb.  05. 

3 


§  4.]  POWER   OF    CORPORATIONS. 

having  public  duties,  the  discharge  of  which  is  the  leading  object 
of  its  creation  ;  required  to  make  returns  to  the  legislature ;  there 
are  certainly  great,  and  in  our  opinion  insuperable  objections  to 
the  doctrine  that  its  franchise  can  be  alienated,  and  its  powers  and 
privileges  conferred  by  its  own  act  upon  another  person  or  body, 
without  authority  other  than  that  derived  from  the  fact  of  its  own 
incorporation.  The  franchise  to  be  a  corporation  clearly  cannot 
be  transferred  by  any  corporate  body,  of  its  own  will.  Such  a 
franchise  is  not,  in  its  own  nature,  transmissible.  The  power  to 
mort^ao-e  can  only  be  coextensive  with  the  power  to  alienate  ab- 
solutely, because  every  mortgage  may  become  an  absolute  convey- 
ance by  foreclosure.  And  although  the  franchise  to  exist  as  a 
corporation  is  distinguishable  from  the  franchises  to  be  enjoyed 
and  used  by  the  corporation  after  its  creation,  yet  the  transfer  of 
the  latter  differs  essentially  from  the  mere  alienation  of  ordinary 
corporate  property.  The  right  of  a  railroad  company  to  continue 
in  being  depends  upon  the  performance  of  its  public  duties.  Hav- 
ing once  established  its  road,  if  that  and  its  franchise  of  managing, 
usino-,  and  taking  tolls  or  fares  upon  the  same  are  alienated,  its 
whole  power  to  perform  its  most  important  functions  is  at  an  end. 
A  manufacturing  company  may  sell  its  mill  and  buy  another  ; 
but  a  railroad  company  cannot  make  a  new  railroad  at  its  pleas- 
ure." 

Other  like  corporations  are  subject  to  the  same  inability  to 
make  any  alienation,  absolute  or  conditional,  either  of  the  gen- 
eral franchise  to  be  a  corporation,  or  of  the  subordinate  franchise 
to  manage  and  carry  on  the  corporate  business.1  Thus,  this  in- 
ability attaches  to  a  corporation  created  for  the  purpose  of  con- 
structing and  maintaining  a  street  railway.  The  main  object  in 
establishing  such  a  corporation  is  not  the  profit  of  the  share- 
holders, but  the  accommodation  of  the  public.  A  mortgage  made 
by  such  a  corporation  of  all  its  property,  without  distinct  legisla- 
tive authority,  is  wholly  void  and  inoperative,  because  it  is  in 
violation  of  the  public  policy  of  the  state.2 

4.   Even  when  organized  under  a  statute  providing  that  the 

corporation  may  "  acquire  and  convey,  at  pleasure,  all  such 

real  estate  as  may  be  necessary  and  convenient  to  carry  into  effect 

the  object  of  the  incorporation,"  a  railroad  company  has  no  power 

1  See  §  1,  last  paragraph.  2  Richardson  v.  Sibley,  11  Allen  (Mass.),  65. 

4 


LEGISLATIVE   AUTHORITY    TO   MORTGAGE   ESSENTIAL.  [§  5. 

to  alienate  its  franchise  to  be  a  corporation,  or  the  franchise  to 
construct  and  maintain  a  railroad,  and  receive  compensation  for 
the  transportation  of  persons  and  property,  nor  any  interest  in 
real  estate  acquired  and  held  solely  and  exclusively  for  the  pur- 
pose of  the  exercise  of  such  franchise.1  The  general  words  of  the 
statute  do  not  extend  to  an  alienation  of  the  franchise,  and  they 
must  be  limited  to  the  purposes  for  which  the  statute  authorized 
the  formation  of  corporations.  When  power  is  given  to  acquire 
an  interest  in  real  estate  for  the  single  and  exclusive  purpose  of 
the  exercise  of  a  franchise,  and  particularly  when,  to  acquire  such 
interest,  there  is  a  delegation  of  the  power  of  eminent  domain, 
the  interest  cannot  be  separated  from  the  use  to  which  alone  it 
can  be  applied  ;  and  if  the  franchise  cannot  be  conveyed,  neither 
can  the  interest  in  real  estate  with  which  it  is  connected  be  con- 
veyed.2 

5.  Ordinary  private  corporations  for  gain  having  no  public 
functions,  not  only  have  an  implied  power  to  incur  debts  and 
borrow  money  for  the  purposes  of  the  corporation,  but  also  an 
implied  power  to  pledge  either  real  or  personal  property  as  secu- 
rity.3 Whatever  qualifications  of  this  rule,  or  exceptions  to  it,  may 
have  been  recognized  by  the  English  courts,4  in  the  United  States 
the  rule  is  established  without  conflict  of  authority.5  The  power 
of  such  corporations  to  mortgage,  unless  expressly  prohibited, 
goes  'pari  passu  with  the  power  to  incur  debts.  In  a  recent  lead- 
ing case  in  England,6  which  involved  the  question  whether  a  file 
manufacturing  company  had  power  to  secure  an  overdraft  at  its 
bankers,  by  a  deposit  of  title  deeds,  Mellish,  L.  J.,  affirming  the 

1  Coe  v.  Columbus,  Piqua  &  Ind.  R.  R.  *  See  German  Mining  Co.  in  re,  4  De 
Co.  10  Ohio  St.  372.  G.,  M.  &  G.  19  ;  Lowndes  v.  Garnett,  &c. 

2  Per  Gholson,  J.,  in  Coe  v.  Columbus,  Gold  Mining  Co.  33  L.  J.  (Ch.)  418  ;  Nor- 
&e.  snjmi.  wicb  Yarn  Co.  in  re,  22  Beav.  143  ;  Troup's 

3  Bank    of  Australasia    v.    Breillat,    6  Case,  21)  Beav.  353. 

Moo.  1'.  C.  152;    Royal   British   Bank  v.  6  Curtis  v.  Leavitt,  15  N.  Y.  9  ;   Beers 

Turqnand,  6  E.  &  B.  .327  ;    International  v.  Phoenix  Glass  Co.  14  Barb.  (N.  Y.)  358  ; 

Life  Ass.  Co.  in  re,  L.  R.  10  Eq.  312;  Bir-  Mead  v.  Keeler,  24  lb.   20;  Partridge  v. 

mingham   Banking  Co.  ex  parte,  L.  R.  6  Badger,  25  lb.  146  ;  Clark  v.  Titcomb,  42 

Ch.  App.  83  ;  General  Provident  Ass.  Co.  lb.  122;  Barnes  v.  Ontario  Bank,  19  X.  Y. 

m  re,  L.   R.  14  Eq.  507;    General  South  152;    Nelson   v.   Eaton,    26    N.    Y.    410; 

Am.  Co.  m  re,  -i  Ch.  Div.  340;    Interna-  Bradley  v.  Ballard,  55  III.  413  ;    Rockwell 

tional    Life  Ass.   Soc.  in  re,  L.  R.  10   Eq.  V.  Elkhorn  Bank,  13  Wis.  653. 

312.  o  Patent  File  Co.  in  re,  L.  11.  G  Ch.  83. 


§  6.]  POWER    OF    CORPORATIONS. 

decision  of  the  Vice  Chancellor,  that  the  company  had  such  power, 
said  :  "It  is  urged  that  no  company  can  mortgage,  unless  ex- 
pressly authorized  to  do  so.  Now  the  company  has  property 
which  it  is  authorized  to  deal  with,  and  I  should  say  that  the  true 
rule  is  just  the  contrary,  namely,  that  the  company  can  mortgage, 
unless  expressly  prohibited  from  doing  so."  And  further :  "  There 
being  nothing  in  the  articles  to  prohibit  the  giving  of  such  a  se- 
curity, I  am  of  opinion  that  the  company  can  give  it  as  well  for  a 
past  debt  as  for  a  future  one.  In  fact,  the  case  is  stronger  in  favor 
of  a  security  for  a  past  debt,  as  it  would  be  absurd  to  say  that  a 
company  has  not  power  to  pay  past  debts ;  and  if  so,  why  should 
it  be  debarred  from  giving  security,  which  is  one  way  of  applying 
its  property  in  payment  of  its  debts  ?  " 

In  another  case,1  it  was  held  that  a  steamship  company,  being 
in  want  of  money  for  the  purposes  of  the  company's  business, 
might  mortgage  its  ships  as  security  for  the  loan,  the  Vice  Chan- 
cellor, Page  Wood,  saying,  "  I  cannot  see  why  it  should  not  be 
within  their  ordinary  province  to  raise  money  by  mortgage  of 
their  ships,  either  for  the  purpose  of  buying  new  ships  or  paying 
creditors." 

Corporations  not  expressly  or  impliedly  restrained  by  the  nature 
of  their  undertaking  may  borrow  money  to  carry  out  the  legiti- 
mate objects  of  their  incorporation,  and  secure  the  payment  of  it 
by  a  mortgage  of  their  property.2  Thus,  for  instance,  a  corpora- 
tion organized  for  the  purposes  of  manufacturing  and  supplying 
gas  to  the  inhabitants  of  a  city  or  village  is  under  no  restriction 
in  this  respect  arising  by  implication  from  the  nature  of  the  busi- 
ness it  was  created  to  engage  in.3  This  restriction  upon  the  right 
of  a  corporation  to  alienate  its  property  arises  not  from  the  fact 
that  it  subserves  a  public  use,  and  is  useful,  or,  it  may  be,  neces- 
sary to  the  general  public  ;  but  it  applies  only  when  the  state,  in 
view  of  the  public  purpose  of  a  corporation,  has  conferred  upon  it 
special  privileges,  of  which  the  right  of  eminent  domain  is  gen- 
erally the  most  important. 

6.    But  the  power  to  transfer  corporate  privileges  and  prop- 

1  See  Australian   Auxiliary  Steamship     St.    59 ;    Monument    National    Bank   v. 
Go.  v.  Mounsey,  4  K.  &  J.  733  ;  27  L.  J.     Globe  Works,  101  Mass.  57. 

(Ch.)  729.  s  Hays  v.  Galion  Gas  Light  &  Coal  Co. 

2  Curtis  v.  Leavitt,  15  N.  Y.  9  ;   Straus     29  Ohio  St.  330. 
v.  Eagle  Ins.  Co.  of  Cincinnati,  5   Ohio 

6 


LEGISLATIVE    AUTHORITY    TO    MORTGAGE   ESSENTIAL.  [§  7. 

erty  by  way  of  mortgage  is  readily  conferred  by  the  legisla- 
ture upon  corporations  having  special  privileges  entrusted  to  them 
for  public  uses  ;  or  a  mortgage  made  without  such  authority  is 
usually  confirmed  by  the  legislature  whenever  such  confirmation  is 
asked  for.1 

An  express  power  to  mortgage  would  seem  to  negative  any  im- 
plied power  for  the  same  purpose,  so  that  where  there  is  express 
authority  to  give  securities  up  to  a  certain  amount,  there  can  be 
no  implied  authority  beyond  this  amount.2  But  an  express  au- 
thority to  mortgage  for  certain  purposes  does  not  necessarily  nega- 
tive or  qualify  a  general  authority  to  borrow  for  other  purposes 
for  which  the  implied  powers  of  a  corporation  are  usually  sum 
cient.3  In  general,  it  may  be  said  that  every  private  corporation 
has  an  implied  power  to  borrow  money  and  give  its  negotiable 
securities  therefor,  unless  it  be  expressly  or  impliedly  restrained 
by  legislation  ;  and  it  is  only  when  the  corporation  attempts  to 
pledge  its  privileges  and  property  essential  to  its  continued  exist- 
ence and  fulfilment  of  its  duties  to  the  public,  that  it  meets  an 
implied  restriction  upon  its  action.4 

A  corporation  authorized  by  its  charter  or  by  statute  to  execute 
a  mortgage  is  the  proper  judge  whether  the  exigency  of  its  affairs 
and  interest  demand  the  exercise  of  this  right ;  and  a  creditor  of 
the  company  cannot  interfere  with  the  making  of  such  mortgage 
unless  he  can  show  that  his  rights  will  be  prejudiced  by  it.5 

7.  The  authority  to  mortgage  the  franchise  need  not  be 
given  in  express  terms.  —  It  is  sufficient  if  it  appears  by  a  reas- 
onable implication  from  a  special  statute  that  the  legislature  in- 
tended to  authorize  such  a  conveyance.0  But  whether  a  statute 
referring  only  to  property  will  authorize  a  mortgage  of  franchises 
may  well  be  questioned.7 

In  a  case  before  the  District  Court  of  the  United  States  for  In- 

i  Richards  v.  Merrimack  &  Conn.  River  Ala.  437;    Mobile  &  Cedar  Point  R.  R. 

I!    K.Co.  44  N.  11.  127;   Kennebec  &  Port-  Co.  v.  Talman,  15  Ala.  4  7i>  ;    Phillips  v. 

IandR.  R.  Co.   v.  Portland   &   Kennebec  Winslow,  18  B.  Mon.  (Ky.)  431. 

B.  B.  Co.  59  Me.  9;  Pierce  v.  Milwaukee  *  See  Ch.  viii. 

&St.  Paul    It.  B.   Co.   24    Wis.    551;    St.  6  Reed  v.  Bradley,  17   111.321. 

Paul   &  Pacific  B.  B.  Co.  v.  Parcher,  14  8  Last   Boston    Freight  R.   R.  Co.  v. 

Minn.  297.  Eastern  R.  R.  Co.  13  Allen  (Mass.),  422. 

-  Briceon  Ultra  Vires,  2d  Eng.  ed.  273.  7  Dunham  v.  Isett,  15  Iowa  284.     See 

3  Allen  v.  Montgomery  R.  B.  Co.    n  Pollard w.Maddox,  28  Ala.  821. 

7 


§  8.]  POWER   OF   CORPORATIONS. 

diana,  it  was  questioned  whether  a  railway  company  whose  charter 
merely  authorized  it  to  mortgage  its  "  road,  income,  and  other 
property,"  could  mortgage  its  franchises.  But  whether  the  com- 
pany had  power  to  mortgage  its  franchises  or  not,  it  could  make  a 
valid  mortgage  of  the  road  itself,  its  tolls,  income,  and  real  estate.1 

A  railway  company  authorized  by  its  charter  to  borrow  money, 
and  to  execute  "  such  securities,  in  amount  and  kind,"  as  it  might 
deem  expedient  to  secure  such  loans,  has  been  held  to  be  author- 
ized to  mortgage  its  entire  road,  with  its  franchises,  and  all  its 
property,  as  well  all  future  acquisitions  for  the  use  of  the  road,  as 
the  property  it  then  had  in  possession.2 

A  statute  of  the  State  of  Mississippi  authorizing  the  Southern 
Railroad  Company  to  buy  out  and  absorb  the  Vicksburg  and  Jack- 
son Railroad  Company  expressly  empowered  it  to  issue  its  bonds 
secured  by  mortgage  of  the  real  and  personal  property  of  the  road, 
its  "  appurtenances  and  franchise  ; "  and  to  use  such  bonds  in  pay- 
ing the  indebtedness  growing  out  of  the  purchase  of  the  latter 
road,  or  in  the  construction  of  the  unfinished  portion  of  that  road, 
or  in  such  other  way  as  the  company  might  desire.  This  was 
considered  as  giving  ample  authority  for  making  a  mortgage  of  its 
franchise  and  property.3 

'  A  railroad  company  which  has  the  power  to  sell  its  property 
may  mortgage  it.  Thus,  a  charter  conferring  the  right  "  to  ac- 
quire, aliene,  transfer,  and  dispose  of  property  of  every  kind," 
confers  the  power  to  mortgage  it.  But  this  is  affirmed  of  the 
property  of  the  company  as  distinguished  from  its  franchises.4 

8.  Legislative  authority  to  mortgage  may  apply  to  the 
property  of  a  corporation  and  not  to  its  franchises.  —  If  a  cor- 
poration, having  power  by  its  charter  to  pledge  lk  its  property  and 
profits,"  executes  a  mortgage  covering  not  only  these,  but  also  its 
franchise  to  be  a  corporation,  such  mortgage  is  not  for  that  rea- 
son entirely  void,  but  it  operates  to  convey  the  property  of  the 
company.  A  mortgage,  however,  of  "  all  the  present  and  future 
to  be  acquired  property  of  the  company,  and  all  its  estate  and 
franchises,"    followed   by   an    enumeration    of  the  property    and 

1  Pullan  v.  Cincinnati  &  Chicago  Air         8  McAllister  v.  Plant,  54  Miss.  106. 
Line  R.  R.  Co.  4  Biss.  35.  *  McAllister  v.  Plant,  54  Miss.  106. 

2  Pierce  v.  Milwaukee  &  St.  Paul  R.  R. 
Co.  24  Wis.  551. 

8 


LEGISLATIVE   AUTHORITY   TO  MORTGAGE  ESSENTIAL.  [§  9. 

rights  intended  to  be  conveyed,  may  be  so  limited  and  explained 
by  such  enumeration  as  to  be  brought  within  the  limits  of  such 
legislative  authority.1 

A  mortgage  may  be  valid  in  part  and  in  part  void.  Thus,  if 
a  corporation  mortgages  its  property  and  franchises  when  it  has 
no  power  to  transfer  its  franchises,  but  is  not  restrained  by  law 
in  respect  to  transfers  of  its  property,  the  mortgage  may  effectu- 
ally pass  the  property,  while  it  is  ineffectual  to  transfer  its  fran- 
chises.2 Under  a  statute  providing  that  corporations  for  man- 
ufacturing, mining,  mechanical,  or  chemical  purposes  shall  not 
mortgage  any  property  except  real  estate,  and  shall  not  do  this 
except  to  secure  the  payment  of  debts,  a  mortgage  by  such  corpo- 
ration to  secure  bonds  is  valid  so  far  as  the  bonds  are  used  for  the 
payment  of  its  debts,  even  though  invalid  so  far  as  the  bonds  are 
used  to  raise  money  to  carry  on  its  operations.3  It  is  doubtless 
true  that  the  bonds  not  used  for  this  purpose  would  be  valid  in 
the  hands  of  bond  fide  holders  ;  and  that  as  against  such  holders, 
the  company  would  be  estopped  from  claiming  the  invalidity  of 
the  mortgage. 

9.  The  scope  and  purpose  of  the  power  conferred  must  be 
substantially  met  in  its  exercise.  —  Under  a  statute  authorizing 
any  railroad  corporation  to  borrow  money  "  for  completing,  fur- 
nishing, and  operating  its  road,"  and  to  issue  bonds  therefor,  se- 
cured by  a  mortgage  of  its  property  and  franchise,4  a  mortgage 
which  appeared  upon  its  face  to  be  "  made  to  consolidate  its  funded 
debt,  obtain  the  money  and  material  necessary  for  perfecting  its 
line  of  railway,  enlarging  its  capacities,  and  extending  the  facilities 
thereof,"  is  within  the  scope  of  the  powers  conferred.  Without 
other  proof  of  the  object  of  the  mortgage,  no  suit  to  restrain  the 
making  of  it,  or  the  issuing  of  bonds  under  it,  can  be  maintained 
by  a  common  stockholder,  or  by  a  preferred  stockholder  of  the  cor- 
poration. For  aught  that  appears  in  the  case,  the  funded  debt 
and  other  debts  may  have  been  incurred  in  constructing  and  op- 
erating the  road,  and  the  excess  of  money  sought  to  be  obtained 
by  such  bonds  may  be  necessary  further  to  complete  and  operate 

>  Butler  v.  Bahm,46Md.  541.  8  Carpenter  v.  Black  Hawk  Gold  Min- 

2  Carpenter  v.  Black  lluwk  Gold  Min-     ing  Co.  supra. 
ing  Co.  65  N.  Y.  43  ;  Central  Gold  Min-         *  2  K.  8.  N.  Y.  1875,  p.  532  ;  Pt.  I.  ch. 
ing  Co.  v.  Piatt,  3  Daly  (N.  Y.),  263.  18,  tit.  15,  §  39  ;  Laws  1850,  ch.  140,  §  28. 

9 


§  10.]  POWER    OF    CORPORATIONS. 

the  same.1  If  the  power  to  make  such  mortgage  exists,  a  com- 
mon stockholder  cannot  restrain  the  making  of  it;  and  a  preferred 
stockholder  stands  in  no  better  condition,  because  if  Lis  right  to 
receive  interest  is  subject  to  the  payment  of  the  interest  on  all 
the  mortgages  of  the  company,  whether  made  before  or  after  the 
issuing  of  the  stock,  he  could  not  object  to  the  making  of  a  new 
mortgage  for  a  new  indebtedness  ;  and  certainly  he  could  not  ob- 
ject to  a  mortgage  which  consolidated  the  funded  debts  of  the 
company,  or  which  embraced  subsequent  indebtedness  with  such 
debts.  If,  on  the  other  hand,  the  preferred  stockholder  be  enti- 
tled to  interest  on  his  preferred  stock,  subject  only  to  the  pay- 
ment of  interest  on  the  mortgages  then  existing,  his  rights  would 
remain  unaffected  by  the  issuing  of  subsequent  mortgages. 

It  has  been  suggested  that  a  mortgage  of  a  railway  and  its 
franchise,  made  without  legislative  authority  is  not  wholly  void 
and  inoperative,  but  that  a  Court  of  Equity  may  give  effect  to 
such  an  instrument,  at  least  to  the  extent  of  treating  it  as  a  good 
equitable  charge  upon  the  net  earnings  of  the  railroad.2 

10.  Authority  to  mortgage  for  the  purpose  of  constructing 
a  railroad  confers  no  right  to  secure  by  mortgage  the  debt  of 
another.  —  A  railroad  company  having  authority  to  borrow  such 
sums  of  money  as  might  be  expedient  for  completing,  maintain- 
ing, and  working  the  railway,  and  to  make  bonds,  debentures, 
or  other  securities,  and  sell  the  same,  and  to  hypothecate,  mort- 
gage, or  pledge  the  lands,  tolls,  revenues,  and  other  property  of 
the  company,  for  the  due  payment  of  such  sums  and  the  inter- 
est thereon,3  cannot  make  a  mortgage  for  any  purpose  not  em- 
braced in  the  terms  of  the  act,  and  therefore  cannot  make  a  mort- 
gage to  secure  a  debt  which  is  not  a  debt  of  the  company.  When 
the  express  purpose  for  which  a  mortgage  is  authorized  to  be 
given  is  the  repayment  of  a  loan  of  money  for  the  completion  or 
maintenance  of  the  road,  a  mortgage  to  secure  the  debt  of  another, 
though  it  may  be  for  the  benefit  of  the  company  to  make  it,  is 
ultra  vires  and  void.4 


1  Thompson  v.  Erie  Ry.  Co.  42    How.  3  Railway  Act  of  Ontario,  sec.  9,  sub-sec. 
(N.  Y.)  Pr.  68.  11. 

2  Bickford  v.  Grand  Junction  Ry.  Co.  4  Grand   Junction  Ry.  Co.  v.  Bickford, 
1  Supreme    Ct.   of  Canada,  696,  737,  per  23  Grant's  Ch.  (Ont.)  302. 

Strong,  J. 

10 


LEGISLATIVE   AUTHORITY   TO   MORTGAGE   ESSENTIAL.        [§  10. 

Although  there  may  be  no  substantial  divergence  of  opinion  in 
relation  to  the  correctness  of  these  general  principles,  a  wide  dif- 
ference will  be  noticed  in  the  application  of  them  by  different 
courts  rendering  judgments  in  the  case  about  to  be  noticed  at 
length. 

The  Grand  Junction  Railway  Company,  having  such  authority 
to  mortgage  its  property,  entered  into  an  agreement  with  a  con- 
tractor for  building  its  road,  by  which  the  contractor  was  to  re- 
ceive in  payment  certain  municipal  and  other  securities,  and  the 
balance  in  the  first  mortgage  bonds  of  the  company,  upon  the 
completion  of  the  work.  After  building  a  portion  of  the  road, 
the  contractor  was  unable  to  procure  iron  for  it,  and  the  railway 
company,  to  enable  him  to  obtain  it,  made  a  mortgage  of  a  por- 
tion of  its  road  to  secure  the  notes  of  the  contractor  given  for  the 
price  of  the  iron,  with  the  provision  that  in  case  of  his  failure  to 
pay  the  notes,  the  mortgagee's  sole  recourse  should  be  against  the 
property,  and  not  against  the  company.  The  vendors  of  the 
iron  retained  a  lien  upon  it  until  it  should  be  laid  on  the  track. 
The  contractor,  after  laying  a  small  part  of  the  iron,  became  in- 
solvent, and  a  large  quantity  of  iron  which  had  been  delivered 
to  him,  but  which  had  not  been  laid  upon  the  road,  was  sold  by 
the  vendors  at  a  large  loss  from  the  price  at  which  the  iron  was 
purchased.  The  holders  of  the  mortgage  of  the  railway  then 
sought  to  enforce  it  for  the  value  of  the  iron  actually  laid  upon 
the  track,  as  well  as  for  the  loss  resulting  from  the  resale  of  the 
iron.  The  railway  company,  while  not  objecting  to  paying  the 
price  of  the  iron  actually  placed  upon  the  road,  objected  to  pay- 
ing the  loss  arising  from  the  resale  ;  and  contended  that  the  mort- 
gage was  ultra  vires. 

The  Court  of  Appeals  of  Ontario  started  with  the  principle,  that 
without  express  legislative  authority  a  mortgage  of  the  corporate 
property  of  a  railway  company  could  not  be  made ;  and  from  this 
deduced  the  conclusion,  that  a  mortgage,  to  be  effectual,  must  be 
within  the  terms  of  the  authority  given  to  create  it.  The  only 
authority  this  company  had  to  mortgage  its  property  was  given  to 
secure  the  repayment  of  money  borrowed  for  the  purpose  of  com- 
pleting or  maintaining  the  road;  whereas,  the  debt  secured  by 
the  mortgage  in  this  case  was  that  of  the  contractor.  The  mort- 
gage was  a  pledge,  by  way  of  collateral  security,  that  the  con- 
tractor should  pay  his   own  debt;  and  tin;   court  regarded  such  a 

11 


§  10.]  POWER    OF    CORPORATIONS. 

mortgage  as  beyond  the  power  of  the  company,  and  invalid,  even 
if  assented  to,  or  ratified  by,  every  stockholder.  The  conrt  also 
declared  that,  inasmuch  as  the  authority  given  to  the  company  was 
to  mortgage  its  property,  tolls,  and  revenues,  the  company  could 
mortgage  only  the  whole  undertaking,  and  that  a  mortgage  of  a 
portion  of  the  line  which  the  company  was  constituted  to  build 
was  void. 

On  appeal  from  the  judgment  of  the  Court  of  Appeal  of  On- 
tario, the  Supreme  Court  of  Canada  1  reversed  this  judgment,  and 
held  the  mortgage  valid.  The  court  start  with  the  proposition 
that  every  corporation  has  the  power  to  mortgage  its  property, 
unless  this  power  be  limited  by  its  charter  or  by  statute  ;  although 
such  limitation  may  be  deduced  either  from  the  object  of  the 
corporation  being  limited  to  certain  specific  things,  or  from  its 
property  being  subject  to  charges  or  trusts  in  favor  of  the  pub- 
lic, with  which  a  mortgage  would  be  inconsistent.  The  statutes, 
however,  confer  express  power  to  mortgage  the  company's  prop- 
erty for  the  payment  of  loans  and  debentures.  This  statutory 
power  to  mortgage  does  not  restrict  the  general  power  of  the  com- 
pany incidental  to  its  existence  to  deal  with  its  property  by  way 
of  mortgage. 

The  mortgage,  moreover,  was  within  the  scope  of  the  powers 
conferred  upon  the  company  to  construct  and  work  a  railway. 
The  iron  rails,  for  the  price  of  which  the  mortgage  was  given, 
were  indispensable  to  enable  the  company  to  carry  out  its  under- 
taking. The  company  might  have  purchased  them  directly  from 
the  vendors.  It  was  found  more  convenient,  however,  to  make  a 
contract  for  the  construction  of  the  railway,  by  which  the  con- 
tractor undertook  to  furnish  the  iron.  Having  the  power  to  give 
a  mortgage  to  secure  the  price  of  rails,  it  can  make  no  difference 
that  they  have  given  the  mortgage  as  sureties  for  the  contractor, 
and  not  as  direct  purchasers.  Indirectly,  it  is  given  to  secure  the 
price  of  rails.  "Had  the  mortgage  been  given  for  any  object 
foreign  to,  or  inconsistent  with,  the  purposes  of  the  incorporation, 
then,  no  doubt,  it  would  have  been  ultra  vires  of  the  company. 
A  familiar  instance  of  a  railway  company  exceeding  the  limits  of 
its  undertaking  is  afforded  by  a  well  known  case,  in  which  such 
a  corporation  added  to  its  legitimate  business  that  of  a  line  of 
steamships.  Had  this  mortgage  been  given  in  aid  or  furtherance 
1  Bickford  v.  Grand  Junction  liy.  Co.  1  Supreme  Ct.  of  Canada,  696,  730. 

12 


LEGISLATIVE   AUTHORITY   TO   MORTGAGE   ESSENTIAL.        [§  11. 

of  any  similarly  unauthorized  enterprise,  it  would,  of  course,  have 
been  ultra  vires  ;  but  it  is  manifest  that  such  was  not  the  case 
here,  and  that  the  sole  object  of  the  corporation  was  to  attain 
the  end  for  which  it  had  been  created."  1 

Furthermore  the  mortgage  cannot  be  considered  wholly  void 
when  it  creates  a  good  charge  upon  any  part  of  the  company's 
property,  although  it  includes  franchises  and  property  which  are 
so  impressed  with  a  trust  in  favor  of  the  public  that  it  is  beyond 
the  power  of  the  company  to  deal  with  them.  Conceding,  say 
the  court,  that  the  mortgage,  if  confined  to  the  franchise,  and  to 
the  railway  and  its  adjuncts,  would  have  been  void  as  being  a 
charge  on  subjects  extra  commercium,  it  does  not  follow  that  it 
may  not  be  a  good  charge  on  other  lands  over  which  the  company 
had  power  of  free  disposition,  and  for  that  reason  alone  the  order 
of  the  court  below  should  be  reversed. 

Of  this  judgment  of  the  Supreme  Court  of  Canada,  it  may  be 
remarked,  that  conceding  its  correctness  as  applied  to  the  case  in 
hand,  it  contains  some  general  propositions  and  reasoning  not  in 
accordance  with  the  best  English  and  American  authorities. 

11.  A  mortgage  without  legislative  authority  of  corporate 
property  essential  to  the  exercise  of  the  corporate  franchise, 
would  seem  on  principle  to  be  subject  to  the  same  objection  that 
is  made  to  a  mortgage  of  the  corporate  franchise  itself  without 
such  authority.2  The  adjudications  upon  this  point  are  conflict- 
ing, though  their  weight  is  in  favor  of  the  proposition  stated. 

A  mortgage  made  in  pursuance  of  authority  to  borrow  money 
on  the  credit  of  the  undertaking,  and  to  "  assign  and  charge  the 
property  of  the  undertaking,  and  the  rates  and  tolls,  as  a  security 
for  the  money  borrowed,"  was  held  not  to  include  the  land  of  the 
company.  The  mortgage  followed  the  words  of  the  power  given 
to  the  company  to  raise  money,  assigning  "  the  said  undertaking, 
and  ;tll  and  singular  the  rates,  tolls,"  &c. ;  Lord  Denman,  C.  J., 
in  his  decision  said  :  3  "In  my  opinion  there  is  nothing  in  those 
words  to  justify  the  construction  that  they  contain  a  demise  of 
the  land,  or  of  any  portion  of  the  real  estate  of  the  defendants. 

1  Bickford  v.  Grand  Junction  By.  Co.  3  Myatt  >•.  St.  Helen's,  &c.  Ry.  Co.  2 
supra,  per  Strong,  J.  Q.  n.  364 

2  Grand  Junction    By.  Co.  v.   Bickford, 

23  Grant's  Cli.  (Ont.)  302. 

13 


§  12.]  POWER   OF    CORPORATIONS. 

Such  a  demise  would  not  only  be  exceedingly  improbable,  but 
very  inconvenient  to  the  public,  as  it  would  perchance  prevent  the 
carrying  on  of  the  very  "  undertaking  "  by  means  of  which  the 
defendants  were  to  be  enabled  to  satisfy  the  demands  of  their 
creditors  and  to  promote  the  convenience  of  the  public." 

Some  cases  on  the  other  hand  have  held  that  a  corporation  may, 
without  special  authority,  mortgage  its  lands  and  other  property, 
in  the  course  of  its  legitimate  business,  as  it  may  deem  expedi- 
ent 51  but  these  decisions  are  exceptional  and  are  not  followed. 

12.  But  land  of  a  railway  company  not  acquired  under  the 
delegated  right  of  eminent  domain,  or  so  connected  with  the 
franchise  to  operate  and  manage  a  railroad  that  the  alienation 
would  tend  to  disable  the  corporation  from  performing  the  public 
duties  imposed  upon  it,  and  in  consideration  of  which  its  char- 
tered privileges  have  been  conferred,  may  be  conveyed  or  mort- 
gaged by  the  company  without  special  authority,  under  the  gen- 
eral right  of  corporations  at  common  law  to  dispose  of  whatever 
property  they  have  power  to  acquire.2  If  the  company  should  in- 
clude in  one  deed  or  mortgage  both  real  estate  not  connected  with 
its  franchises  and  real  estate  essential  to  the  exercise  and  enjoy- 
ment of  its  franchises,  as  for  instance  a  portion  of  its  roadway, 
the  conveyance  might  be  upheld  as  to  the  former,  and  treated  as 
inoperative  and  void  as  to  the  latter.  The  ordinary  rule  is  ap- 
plied, that  if  the  part  of  the  subject  of  the  conveyance  which  is 
valid  can  be  separated  from  that  which  is  void,  the  conveyance  will 
be  carried  into  effect  so  far  as  it  can  be.  As  to  property  not  ac- 
quired for  the  purposes  of  the  road,  the  corporation  stands  in  the 
relation  of  an  ordinary  trading  corporation  which  has  no  public 
obligations. 

The  power  of  mortgaging  land  grants  or  surplus  lands  not 
needed  for  the  permanent  way,  station-houses,  or  grounds  required 
for  the  uses  or  purposes  of  the  railroad,  is  one  of  the  ordinary 
powers  of  a  railroad  company.  This  right  of  alienation  extends 
to  lands  acquired  in  the  exercise  of  compulsory  powers  as  well  as 

1  White  Water   Valley   Canal   Co.   v.        2  Hende'e  ».  Pinkerton,  14  Allen  (Mass.), 
Vallette,  21  How.  414,  per  Campbell,  J. ;     381  ;  Farnsworth  v.  Minn.  &  Pacific  Ry. 
and  see  Shepley  v.  Atlantic  &  St.  Law-     Co.  92  U.  S.  49 ;    Tucker  v.  Furgusson, 
rence  R.  R.  Co.  55  Me.  395  ;    Kennebec  &     22  Wall.  572. 
Portland  R,  R.  Co.  v.  Portland  &  Kennebec 
R.  R.  Co.  59  Me.  9,  23. 
14 


LEGISLATIVE   AUTHORITY    TO   MORTGAGE   ESSENTIAL.        [§  13. 

those  obtained  by  purchase  and  government  grant.  It  is  a  mat- 
ter of  common  experience  that  upon  the  completion  of  a  railroad 
the  company  finds  itself  in  possession  of  land  not  required  for  the 
purpose  of  its  working,  which  it  may  have  been  compelled  to  pur- 
chase as  part  of  other  property,  or  which  purchased  or  taken  as 
necessary  for  the  use  of  the  railroad  has  in  the  event  been  found 
to  be  superfluous.  There  is  no  ground  for  contending  that  such 
land  is  impressed  with  a  public  trust,  so  that  the  company  cannot 
freely  alienate  it.1  The  retention  of  such  lands  can  serve  no  pos- 
sible purpose  of  public  utility  or  public  policy. 

A  power  to  mortgage  conferred  by  statute  upon  a  railroad  com- 
pany has  reference  only  to  such  lands  and  property  as  the  com- 
pany could  lawfully  acquire,  and  cannot  therefore  include  such  as 
is  not  necessary  to  the  purposes  of  the  road.  But  a  railroad  cor- 
poration having  authority  to  receive  land  in  payment  of  subscrip- 
tions for  stock,  provided  that  so  much  of  the  land  as  may  not  be 
necessary  for  the  use  of  the  road  shall  be  sold  within  a  reasonable 
time,  may  mortgage  such  land,  if  the  property  be  not  thereby 
placed  in  such  condition  as  to  put  it  out  of  the  power  of  the  com- 
pany to  comply  with  the  terms  of  the  statute.2 

13.  Authority  to  a  railway  company  to  mortgage  its  road 
is  authority  for  its  making  a  mortgage  of  a  part  of  it.3  —  But 
if  the  authority  to  execute  a  mortgage  of  a  railroad  indicates  that 
the  mortgage  is  to  embrace  the  road  as  a  whole,  then  it  cannot  be 
mortgaged  in  parts.  Thus,  a  statute  of  the  province  of  Ontario, 
authorizing  railway  companies  to  hypothecate,  mortgage,  or  pledge 
the  lands,  tolls,  revenues,  and  other  property,  for  the  purpose  of 
completing,  maintaining,  and  working  their  roads,  was  thought  to 
prohibit  by  implication  the  creation  of  a  mortgage  upon  a  part 
of  the  line  only.4  A  mortgage  of  an  undertaking,  or  of  the  prop- 
erty of  a  railway  company  as  a  going  concern,  is  a  very  different 
thing  from  a  mortgage  of  a  part  of  the  specific  propert}'  of  a  com- 
pany, and  confers  very  different  rights.  Notwithstanding  the 
giving  of  such  a  mortgage,  the  interest  of  the  public  in  the  work- 
ing ami  maintenance  of  the  road  is  provided  for,  because  the  prop- 

■   Bickford  v.  Grand. Junction  Ey.  Co.  1  8  Pullan  v.  Cincinnati   &  Chicago  Air 

Su;  ceme  Ct.  of  Canada,  696,  735.  Line  R.  R.  Co.  i   Bias.  35,  -15. 

3  Taber  v.   Cincinnati,   Logansport   &  *  Grand  Junction  lty.  Co.  v,  Bickford, 

Chicago  Rv.  Co.  15  Ind.  459.  2.3  Giant's  Ch.  (Out.)  302,  354. 

16 


§§  14,  15.]  POWER   OF   CORPORATIONS. 

erty  cannot  be  sold  under  foreclosure,  and  it  is  only  by  keeping 
the  road  in  a  condition  to  earn  surplus  revenue  that  the  mort- 
gagee can  obtain  any  benefit  from  the  security.1 

14.  A  mortgage  of  its  property  and  franchise,  executed  by 
a  railroad  corporation  without  previous  legislative  author- 
ity, is  capable  of  being  ratified  and  affirmed  by  the  legislature, 
and  rendered  as  valid  and  effectual  as  it  would  have  been  if  exe- 
cuted under  such  previous  authority.2  Such  a  mortgage  is  not 
absolutely  void,  but  voidable  only.  An  act  authorizing  the  trus- 
tees under  such  a  mortgage  to  sell  the  road  is  such  a  ratification.3 

Prior  to  the  enactment  of  general  laws  authorizing  mortgages 
by  railroad  companies,  they  were  frequently  made  without  legis- 
lative sanction  in  reliance  that  the  legislature  would  afterwards 
confirm  them  ;  and  there  seems  to  have  been  no  difficulty  in  ob- 
taining such  confirmation. 

15.  The  franchise  which  a  railroad  company  transfers  by 
its  mortgage  is  not  its  franchise  to  exist  as  a  corporation,  but 
only  such  of  its  franchises  or  privileges  as  will  enable  the  grantee 
to  have  the  same  use  and  beneficial  enjoyment  of  the  property 
which  the  company  itself  had  ;  and  especially  is  this  the  case 
when  the  charter  merely  authorizes  the  company  to  mortgage 
"  its  means,  property,  and  effects,"  without  express  mention  of 
franchises.  Mr.  Justice  Manning,  in  a  recent  case  before  the  Su- 
preme Court  of  Alabama,4  upon  this  point  said  :  "  Strictly,  '  the 
franchise  to  exist  as  a  corporation'  is  not  a  corporate  franchise, 
'  or  franchise  of  the  corporation,'  at  all.  It  is  a  franchise  of  the 
individual  corporators,  of  the  natural  persons  who  are  sharehold- 
ers of  the  capital  stock,  and  pertains  to  them  as  such  corporators  ; 
whereby  they  are  endowed  with  the  privilege  and  capacity  of 
being  constituted  into,  and  cooperating  together,  as  a  body  politic, 
with  power  of  succession,  and  without  individual  liability.  And 
the  corporation  as  such  in  its  collective  capacity,  or  by  its  board 
of  directors,  has  no  more  power  to  sell  this  franchise  thus  pertain- 

1  See  §§99-101.  Co.    55   Me.  395;    White    Water  Valley 

2  Shaw  v.  Norfolk  County  R.  R.  Co.  5  Canal  Co.  v.  Vallette,  21  How.  414. 
Gray  (Mass.),  162    Richards  v.  Merrimack  3  Richards  v.  Merrimack  &  Conn.  River 
&  Conn.  River  R.  R.  Co.  44  N.  H.  127 ;  R.  R.  Co.  supra. 

Shepley  v.  Atlantic  &  St.  Lawrence  R.  R.         *  Meyer  v.  Johnston,  53  Ala.  237,  325. 

See,  however,  Pierce  v.  Emery,  32  N.  H. 
16  484. 


LEGISLATIVE   AUTHORITY   TO   MORTGAGE   ESSENTIAL.        [§  16. 

ing  to  the  corporators  individually,  than  it  has  to  sell  their  paid- 
up  shares  of  the  capital  stock.  The  interest  of  each  of  these  in 
this  franchise  is  transferred  with  his  shares  of  stock,  and  passes 
with  them  from  one  individual  to  another ;  and  this  is  the  proper 
mode  of  parting  with  and  acquiring  this  particular  privilege.  A 
railroad  company  may  continue  to  exist  as  a  corporation  after  its 
railroad,  with  all  its  appurtenances,  has  been  sold  away  from  it. 
There  may  be  other  property  to  dispose  of,  or  credits  to  get  in,  or 
obligations  to  be  discharged,  or  interests  to  be  protected,  which 
require  its  continued  existence,  and  which  may  not  belong  to,  or 
be  chargeable  upon,  the  persons  who  were  purchasers  of  its  rail- 
road and  the  franchises  necessary  for  the  maintenance  and  opera- 
tion of  it.  And  on  the  other  hand,  those  purchasers  might  not 
desire  to  be  constituted  into  a  corporation  at  all.  Or,  if  they  did, 
it  might  be  very  inconvenient  to  find  themselves  composing  the 
same  body  politic,  whose  property  had  just  been  sold  to  them  for 
the  payment  of  some  of  its  debts.  For  it  would  seem  that  if 
with  the  railroad  they  acquired  also  the  company's  '  franchise  to 
be  a  corporation,'  with  the  same  faculties  and  name,  by  virtue  of 
and  with  which  the  former  body  existed,  they  acquired  it  to  be 
assumed  and  used,  and  so  must  themselves  become  that  corpora- 
tion, and  be  bound  to  perform  its  obligations." 

The  mortgage  of  a  railroad,  or  a  sale  under  the  mortgage,  does 
not  necessarily  work  the  dissolution  of  the  corporation.  It  may 
be  ground  of  forfeiture  if  insisted  upon  by  the  state,  but  this  is  a 
matter  between  the  state  and  the  corporation  with  which  third 
persons  have  nothing  to  do.1 

A  corporation  having  authority  to  borrow  money,  and  secure  the 
payment  of  it  by  mortgage  of  "  the  entire  road,  fixtures,  and  equip- 
ments, with  all  the  appurtenances,  income,  and  resources  thereof," 
cannot  mortgage  the  franchise  to  be  a  corporation  appertaining  to 
tilt;  individual  members  of  the  corporation,  but  can  mortgage  the 
franchise  to  maintain  the  railroad  and  secure  compensation  for  the 
transportation  of  persons  and  property,  and  can  mortgage  property 
connected  with  the  railroad,  whether  real  or  personal,  then  owned 
by  it,  or  subsequently  to  be  acquired,  and  the  use  of  its  franchise.2 

16.     The  franchise   to  be  a  corporation   is  not  necessarily 

1  Artlmr  i).  Commercial  &  Railroad  2  Coe  v.  Columbus,  Piqua  &  Ind.  1{.  It 
Bonk  of  Vicksburj,',  'J  8.&  .M.  (Miss.)  394.      Co.  10  Ohio  St.  372. 

2  17 


§  16.]  POWER    OF   CORPORATIONS. 

included,  if  it  ever  be  included,  in  a  mortgage  by  a  railroad 
company  of  its  road  and  franchises.  The  right  to  build,  own, 
manage,  and  run  a  railroad,  or  take  the  tolls  thereon,  is  not  of 
necessity  of  a  corporate  character,  or  dependent  upon  corporate 
rights.1  It  may  belong  to,  and  be  enjoyed  by  natural  persons, 
and  there  is  nothing  in  its  nature  inconsistent  with  its  being  as- 
signable. "  To  the  suggestion  that  the  assignees  can  obtain  and 
enjoy  the  fruits  of  this  mortgage  only  in  virtue  of  the  continued 
existence  and  organization  of  the  corporation,  and  the  corporation, 
having  parted  with  rights  that  are  indispensable  to  its  fulfilling 
the  ends  for  which  it  was  created,  would  no  longer  be  entitled  to 
continue,  and  so  the  end  for  which  it  was  created  would  be  de- 
feated, it  seems  sufficient  to  say,  that  whether  its  potential  ex- 
istence and  its  organization  would  continue  or  not  would  depend 
on  whether  it  should  have  subjected  itself  to  a  forfeiture  of  exist- 
ence, by  the  failure  to  answer  the  purposes  for  which  it  was  cre- 
ated, in  the  matter  of  its  duties  to  the  public.  So  long  as  these 
duties  should  be  performed,  would  not  the  claim  of  the  public,  as 
well  as  of  individuals,  be  fully  answered  ?  And  is  it  to  be  pre- 
sumed in  anticipation,  that  the  assignees  will  fail  to  perform  those 
duties  as  fully  as  the  corporation  would  have  done,  when  the  same 
motives  exist  and  would  be  operative  upon  the  assignees  as  upon 
the  corporation,  and  when  the  same  remedies  may  be  made  avail- 
able, both  in  favor  of  the  public  and  of  individuals,  for  a  failure 
to  operate  the  road,  —  namely,  as  to  the  public,  a  forfeiture  of  the 
rights  granted  by  the  charter,  and  in  favor  of  individuals,  a  re- 
verter of  the  land  constituting  the  roadway  ?  "  2 

The  Vermont  Central  Railroad  Company  conveyed  in  trust 
and  mortgage  to  trustees,  to  secure  the  payment  of  its  bonds,  its 
railroad  and  franchise,  "  with  all  the  lands  thereto  belonging  and 
intended  for  the  use  and  accommodation  of  said  road."  Subse- 
quently a  creditor  recovered  judgment  against  the  company,  and 
levied  his  execution  upon  certain  lands  which  were  not  then  used 
for  the  accommodation  of  the  road  ;  but  the  trustees  claiming  the 
land  under  the  mortgage,  a  bill  in  equity  was  brought  to  remove 
such  claim,  and  relieve  the  title  from  this  cloud.  It  was  held3  that 
only   such   land  passed  by  this   conveyance  as  was  so  connected 

1  Bank  of  Middlebury  v.  Edgerton,  30  2  Per  Barrett,  J.,  in  Miller  v.  Rutland 

Vt.  182,  190  ;  Miller  v.  Rutland  &  Wash-  &  Washington  R.  R.  Co.  supra. 

ington  R.  R.  Co.  3G  Vt.  452,  498.  3  Eldridge  v.  Smith,  34  Vt.  484,  489. 
18 


LEGISLATIVE   AUTHORITY    TO   MORTGAGE   ESSENTIAL.        [§  17. 

with  the  railroad,  and  used  for  it  by  the  company,  that  it  would 
have  been  authorized  to  take  the  land  compulsorily  under  its 
charter;  although  if  so  connected  and  used,  it  was  immaterial 
whether  it  was  actually  so  taken  or  purchased  by  the  company. 
To  the  argument  of  counsel,  that  the  mortgage  being  of  the 
franchise  of  the  corporation,  and  therefore  that  all  property  owned 
by  it,  whether  connected  with  the  road  or  not,  and  whether  cov- 
ered by  the  language  of  the  description  or  not,  passed  by  the 
deed,  Chief  Justice  Poland,  delivering  the  opinion  of  the  court, 
replied  :  "  It  is  said  that  one  of  the  franchises  of  all  corporations  is 
the  power  of  being  a  body  politic,  of  corporate  existence,  with 
rights  of  succession  of  members.  Another  is,  its  rights  of  repre- 
sentation in  court  by  its  corporate  name,  either  as  plaintiff  or  de- 
fendant. It  has  a  general  power,  also,  of  acquiring,  holding,  and 
conveying  property.  In  addition  to  these  general  corporate  powers, 
this  company  was  invested  by  the  legislature  with  a  power  to  build 
a  railroad  between  certain  points  and  to  operate  and  manage  the 
same,  and  take  tolls  and  fares  on  the  same  for  their  own  benefit 
and  profit ;  and,  to  the  extent  of  the  proper  necessities  of  the  road, 
was  authorized  to  exercise  the  sovereign  power  of  the  state,  to 
sequester  private  property  without  the  consent  of  the  owners,  by 
making  compensation  therefor.  When  a  railroad  company  mort- 
gages its  road  and  appurtenances  as  a  security  for  debt,  and  also 
its  franchise,  it  is  not  to  be  understood  as  conveying  its  corporate 
existence,  or  its  general  corporate  powers,  but  only  the  franchise 
necessary  to  make  the  conveyance  productive  and  beneficial  to  the 
grantees,  to  maintain  and  support,  manage  and  operate,  the  rail 
road,  and  receive  the  tolls  and  profits  thereof  for  their  own  benefit." 
In  like  manner  a  foreclosure  sale  of  the  property  and  franchises 
of  a  railroad  company  does  not  pass  to  the  purchaser  debts  due  the 
company.  The  corporate  existence  of  the  company  is  continued 
for  the  purpose  of  collecting  such  debts,  as  well  as  for  other  pur- 
poses.1 

17.  A  less  stringent  doctrine  as  to  the  power  of  a  corpo- 
ration without  legislative  authority  to  mortgage  its  franchise 
and  property  prevails  in  some  states.  Thus,  in  Kentucky  it  has 
been  beld  that  a  railroad  company,  authorized  by  its  charter  to 
borrow  on  its  credit,  but  not  expressly  authorized  to  make  a  mort- 

1  Smith  v.  Gowcr,  2  Duv.  (Ivy.)  17. 

19 


§  18.]  POWER    OF   CORPORATIONS. 

gage  of  its  property  or  franchises  to  secure  the  loan,  yet  had  an 
implied  power  to  do  so  ;  and  that  although  it  could  not  in  such 
case  mortgage  its  corporate  existence,  or  any  prerogative  franchise 
conferred  upon  it,  it  might  mortgage  its  right  to  build  and  use  its 
road,  for  this  is  not  a  prerogative  franchise.1  Upon  the  foreclosure 
of  such  mortgage,  a  purchaser  would  take  the  road  subject  to  the 
terms  of  the  charter  ;  but  he  would  have  power  to  hold  and  manage 
the  road  as  an  individual.  Whether  the  road  should  be  operated 
by  an  individual  or  a  corporation  was  not  regarded  as  a  matter  of 
any  interest  to  the  public ;  and  it  was  urged  that  under  the  char- 
ter of  a  corporation  a  single  person,  by  purchasing  all  its  stock, 
could  control  the  road  as  completely  as  if  he  owned  it  individually. 

18.  In  a  few  instances  the  doctrine  has  been  practically 
discarded  that  a  railroad  company  can  make  a  valid  mortgage 
only  by  legislative  consent  given  either  before  or  after  the  mort- 
gage. The  argument  that  it  is  dangerous  to  the  public  interests 
to  have  the  privileges  conferred  by  a  railroad  franchise  trans- 
ferred to  a  new  body  by  the  action  of  the  corporation  itself,  is 
declared  to  be  of  little  weight,  inasmuch  as  the  active  manage- 
ment of  the  corporation  is  liable  to  be  changed  at  any  time  by  the 
action  of  the  stockholders  ;  and  that  in  all  cases  the  influence  of 
the  original  corporators  is  but  a  temporary  matter.2  The  transfer 
of  the  franchise  to  new  hands  through  a  foreclosure  of  a  mortgage 
is  in  fact  a  change  no  greater  than  may  take  place  within  the 
original  corporation  ;  and  the  public  interests  are  as  safe  in  such 
new  hands  as  they  were  in  the  hands  of  the  original  corporators. 

It  is  claimed  that  a  railroad  company  cannot  mortgage  its  prop- 
erty and  franchise  without  legislative  authority,  because  the  fran- 
chise is  conferred  upon  a  particular  body  of  men  constituting  the 
corporation,  implying  a  special  confidence  in  them  to  answer  the 
trusts  in  behalf  of  the  public.  The  Supreme  Court  of  Vermont 
regarded  this  idea  as  altogether  fanciful  and  theoretical,  saying, 
in  fact,  that  there  is  no  such  confidence ;  that  from  the  nature  of 
the  case  there  could  not  be  ;  for  the  reason,  that  who  shall  com- 
pose the  corporation  at  any  given  time  depends  on  the  share- 
holders of  the  capital  stock,  —  one  set  of  men  to-day  ;  another  to- 

i  Bardstown  &  Louisville  R.  R.  Co.   v.  R.  R.  Co.  55  Me.  395,  407,  per  Walton,  J. ; 

Metcalfe,  4  Met.  (Ky.)  199.  Kennebec  &  Portland  R.  R.  Co.  v.  Portland 

2  Shepley  v.  Atlantic  &  St.  Lawrence  &  Kennebec  R.  R.  Co.  59  Me.  9,  23. 
20 


LEGISLATIVE   AUTHORITY   TO   MORTGAGE   ESSENTIAL.        [§  19. 

morrow  ;  some  citizens  of  the  state  ;  some  foreigners  ;  that  the 
true  idea  is,  that  the  public  relies,  for  its  assurance  that  its  rights 
will  be  duly  protected,  upon  the  fact  that  they  must  be,  in  order 
that  the  conferred  privileges  may  be  held  and  enjoyed  by  the  cor- 
poration, of  whomsoever  composed, —  not  upon  any  personal  con- 
fidence which  the  legislature  has  in  an  indiscriminate  body  of  per- 
sons, —  men,  women,  and  children,  citizens  and  foreigners,  daily 
changing,  who  may  become  or  cease  to  be  stockholders  at  their 
own  pleasure  and  without  restraint.1 

Mr.  Justice  Strong,  of  the  Supreme  Court  of  Canada,  considered 
it  an  open  question  whether  all  the  rights  and  privileges  of  a  rail- 
road corporation,  save  only  its  right  to  be  a  corporation,  are  not 
susceptible  of  alienation  by  mortgage  or  otherwise  ;  whether  it 
may  not,  for  instance,  mortgage  or  otherwise  alienate  its  rights  of 
taking  lands,  operating  the  road,  taking  tolls,  and  exercising  the 
other  rights  and  powers  usually  conferred  on  railroad  companies, 
the  transferees  being  subject  to  all  the  trusts  and  burdens  in  favor 
of  the  public  which  the  original  company  was  liable  to.2 

19.  Aside  from  mortgaging  their  franchises  or  property, 
corporations,  like  individuals,  unless  restrained  by  law,  have 
the  power  to  borrow  money  and  to  acknowledge  the  indebted- 
ness by  giving  therefor  ordinary  commercial  obligations.3  If  the 
manner  of  borrowing  be  prescribed  by  statute,  or  the  amount  of 
loans  be  limited,  or  the  obligations  to  be  given  for  the  money  be 
specified,  the  implied  power  is  to  this  extent  controlled. 

A  railroad  corporation  having  power  to  build  a  road  and  issue 
bonds  and  negotiate  them  to  raise  money,  has  authority  to  issue 
to  contractors,  in  payment  for  work  clone,  negotiable  certificates 
of  indebtedness  payable  in  money  or  bonds.  The  payment  of  the 
expense  of  construction  in  bonds  is  a  sale  of  them.  Having  con- 
tracted a  legitimate  liability,  the  corporation  has  undoubted  au- 
thority to  acknowledge  it  and  to  promise  to  pay  it  by  a  written 
obligation. 

1  Miller  v.  Rutland  &  Washington  R.  R.  3  Soe  §§  99-101;  West  Cornwall  Ry. 

Co.  36  Vt.  452,  492,  per  Barrett,  J.  Co.  v.  Mowatt,   12  Jur.  407;    Australian 

-  Bickford  v.  Grand  Junction  Ry.  Co.  Auxiliary  Clipper  Co.  v.  Mounsey,  4   K. 

1    Supreme  Court  of  Canada,  696,  738;  &   J.  733;    Byron  v,  Metropolitan  Saloon 

citing  Ball  p.  Sullivan,  21  Law  Reporter,  Omnibus  Co.  8  De  G.  &  J.  123 ;    [mperial 

138,  per  Curtis,  J. ;    Wilmington  Ry.  Co.  Land  Co.  of  Marseilles  in  re,L.  R.  1 1  Eq. 

v.  Reed,  13  Wall.  268.  47b. 

21 


§  20.]  POWER    OF    CORPORATIONS. 

On  such  a  certificate,  promising  to  pay  a  specified  sum  with 
interest,  in  bonds  on  demand,  if  the  corporation  does  not  on  de- 
mand exercise  its  election  to  make  payment  in  bonds,  the  creditor 
may  recover  the  amount  in  money ;  payment  in  bonds  being  a 
privilege  for  the  benefit  of  the  corporation  ;  but  if  this  privilege 
be  not  taken  advantage  of  at  the  proper  time,  the  rule  of  damages 
is  the  principal  sum  and  interest.1 

20.  Where  corporations  constituted  for  specific  purposes 
are  by  statute  limited  in  the  amount  of  money  they  are  per- 
mitted to  borrow,  or  conditions  are  imposed  upon  them  as  to  the 
manner  in  which  they  shall  exercise  their  borrowing  powers,  if 
they  borrow  in  amounts  or  in  a  manner  unauthorized  by  law,  the 
securities  have  no  legal  validity.  Thus  where  a  dock  company 
was  authorized  by  the  special  act  to  raise  money  on  the  security 
of  the  tolls  and  other  property,  and  the  mortgages  were  directed 
to  be  registered,  and  the  company  mortgaged  to  a  contractor  a 
quantity  of  tools,  machinery,  and  materials  used  on  the  works, 
but  the  securities  were  not  made  in  the  form  required  by  the  act, 
or  registered,  it  was  held  that  the  mortgage  was  void.2  A  re- 
striction as  to  the  amount  a  corporation  may  borrow,  when  it  has 
no  power  to  borrow  other  than  that  expressly  conferred,  as  is  the 
case  with  municipal  corporations,  would  seem  to  be  a  condition  a 
breach  of  which  would  render  the  securities  void ; 3  but  if  the 
corporation  has  a  general  power  to  borrow,  even  if  there  is  no 
right  of  action  upon  securities  in  excess  of  the  limit,  the  money 
lent  may  be  recovered  in  assumpsit.4  It  may  happen  also  that 
while  a  mortgage  given  by  a  corporation  may  be  outside  its  power, 
the  indebtedness  incurred  may  be  a  valid  obligation.5  On  the 
other  hand  the  mortgage  may  be  valid,  being  expressly  authorized, 
while  the  acknowledgments  of  indebtedness  secured,  as  for  in- 
stance bills  of  exchange,  may  be  prohibited,  in  which  case  the 
mortgage  would  be  regarded  as  securing  the  debt  for  which  the 
bills  of  exchange  were  given,  and  therefore  not  on  that  account 
invalid.6     When  corporations  are  restricted  in  their  borrowing  to 

1  Pusey  v.  N.  J.  West  Line  R.  R.  Co.  4  Brice  on  Ultra  Vires,  2d  ed.  267 ;  In 
14  Abb.  (N.  Y.)  Pr.  N.  S.  434.  re  Pooley  Hall  Colliery  Co.  21  L.  J.  N.  S. 

2  McCormick  v.  Parry,  7  Exch.  355  ;  21     690. 

L.J.  (Ex.)  43.  5  Holdsworth  v.  Mayor  of  Dartmouth, 

3  Gordon  v.  Sea  Fire  &  Life   Ass.  Co.     11  A.  &  E.  490. 

1  H.  &  N.  599.  6  Scott  v.  Colburn,  26  Beav.  276. 

29 


LEGISLATIVE    AUTHORITY   TO   MORTGAGE   ESSENTIAL.        [§  21. 

certain  amounts,  there  is  no  doubt  that  when  this  is  the  ease  the 
power  may  be  exercised  again  and  again  so  long  as  the  limit  is 
not  exceeded  at  any  one  time.1 

The  rights  of  bond  fide  holders  of  negotiable  securities  of  cor- 
porations will  be  considered  elsewhere,  as  also  the  circumstances 
under  which  corporations  may  be  estopped  from  taking  advantage 
of  an  irregular  exercise  of  their  borrowing  powers  ;  and  reference 
is  here  made  to  these  subjects  merely  to  say  that  the  rights  of 
holders  of  securities  issued  in  violation  of  restrictions  imposed  by 
statute  may  be  secure,  although  the  securities  themselves  were 
upon  their  first  issue  void. 

21.  "What  are  known  in  England  as  Lloyd's  bonds  are  obli- 
gations which  purport  to  be  issued  by  corporations  for  work  done, 
or  materials  supplied  for  the  purposes  of  the  undertaking.  They 
are  generally  issued  in  this  way  in  order  to  avoid  the  limitation 
imposed  by  parliament  as  to  the  amount  of  money  which  a  rail- 
way company  is  permitted  to  borrow.  As  such  bonds  are  noth- 
ing more  than  an  acknowledgment  under  seal  of  a  debt  due  for 
a  bond  fide  consideration,  there  is  no  reason  to  doubt  their  va- 
lidity when  given  bond  fide  to  contractors  or  others  for  work  act- 
ually done.2  The  power  to  issue  such  bonds  is  liable  to  gross 
abuse  ;  3  and  when  not  in  fact  issued  for  the  purposes  specified, 
they  are  void.4  But  the  substance  of  the  contract,  rather  than 
the  form  of  it  is,  regarded.  Thus,  where  a  railway  company, 
whose  borrowing  powers  were  not  to  arise  until  it  had  completed 
and  opened  a  certain  portion  of  its  line  for  traffic,  borrowed  from 
another  railway  company  money  sufficient  to  enable  it  to  complete 
the  requisite  portion  of  the  line,  under  an  agreement  that  the  bor- 
rowing company  would,  when  its  borrowing  powers  arose,  issue 
its  debentures  in  repayment,  it  was  held  that  there  was  nothing 
illegal  in  the  contract,  and  that  the  debentures  were  valid  to  the 
extent  of  the  sum  actually  advanced  in  payment  of  the  contrac- 
tor's accounts.5 

In  one  respect  Lloyd's  bonds  have  an  advantage  over  ordinary 

1   Brice  on  Ultra  Vires,  2d  cd.  266.  Co.  5  B.  &  S.  588;  3.3  L.  J.  (Q.  B.)  268  i 

-  White  v.  Carmarthen,  &c.  I£y.  Co.    1  Fountuine  v.  Carmarthen  Ry.  Co.  L.  R. 

II.  &  M.  780  ;  33  L.  J.  Ch.  93  ;   1   Cox's  5  Eq.  316;  37  L.  J.  Ch.  429. 

Joint  Stock  (,'iis.  112.  6  See  Bagnalstown  v.  Wexford  Ry.  Co. 

'■'■  Hodges  Law  of  Railw.  6th  cd.  ISO.  L.  K.4  Eq.  505. 

4  Chambers  v.  Manchester  &  Milford  Ky. 

23 


§§  22,  23.]  POWER   OF   CORPORATIONS. 

mortgages  and  bonds,  for  they  are  not  hampered  by  the  provisions 
of  law  applicable  to  securities  regularly  issued,  which  place  all 
such  obligations  upon  an  equality  whenever  issued.  The  holders 
of  these  irregular  bonds  can  sue  upon  them  and  recover  judg- 
ment, and  issue  execution  against  the  corporation  in  the  same 
manner  as  creditors  may  do  upon  ordinary  debts.1 

22.  A  corporation  may  borrow  from  a  director  and  mort- 
gage its  property  to  him  to  secure  the  payment  of  the  loan,  and 
the  transaction,  when  open,  and  otherwise  free  from  blame,  can- 
not be  impeached.2  There  are  three  parties  whose  interests  are 
affected  by  the  transaction  ;  namely,  the  lender,  the  corporation, 
and  its  stockholders.  The  directors  represent  the  interests  of 
the  corporation  and  of  the  stockholders.  Therefore  when  a  di- 
rector deals  with  his  company,  his  obligation  to  candor  and  fair 
dealing  is  increased  in  the  precise  degree  that  his  representative 
character  has  given  him  power  and  control,  through  the  confi- 
dence reposed  in  him  by  the  stockholders,  who  appointed  him 
their  agent.  This  obligation  would  be  still  stronger  with  a  sole 
director,  or  with  one  of  a  very  small  number  vested  with  the 
management  of  the  company,  and  his  acts  would  be  subject  to 
more  severe  scrutiny,  and  their  validity  determined  by  more  rigid 
principles  of  morality,  and  by  their  freedom  from  ingredients  of 
selfishness.  But  at  the  same  time,  a  director  is  more  than  any 
one  else  interested  in  aiding  the  corporation  judiciously,  and  is 
best  qualified  to  judge  of  the  necessity  of  that  aid,  and  of  the 
extent  to  which  it  may  be  safely  given.  A  loan,  therefore,  hon- 
estly made  by  a  director  for  the  benefit  of  the  corporation,  both 
in  the  rate  of  interest  and  in  the  security  taken,  is  valid  origin- 
ally, whether  liable  to  be  avoided  afterwards  or  not. 

23.  A  corporation  may  be  estopped  from  setting  up  the  de- 
fence of  ultra  vires  to  its  obligation  in  the  hands  of  a  holder  in 
good  faith  for  value,  who  cannot  be  presumed  to  have  had  any 
knowledge  of  the  want  of  authority  to  make  the  contract.  Of 
course,  if  the  contract  be  absolutely  prohibited  by  the  charter  of 
incorporation,  or  by  a  general  statute,  or  if  the  law  implies  such  a 
prohibition  from  the  purposes  for  which  the  corporation  was  cre- 

i  Cork  &  Youghal  Ry.  Co.  L.  E.  4  Ch.  2  Twin-Lick  Oil  Co.  v.  Marbury,  91  U. 
App.  748.  S.  587. 

24 


LEGISLATIVE   AUTHORITY    TO   MORTGAGE   ESSENTIAL.      [§§  24,  25. 

ated,  all  persons  dealing  with  it  are  bound  to  take  notice  of  the 
extent  of  the  company's  powers.  But  when  there  is  no  apparent 
want  of  power  in  the  corporation  to  incur  the  obligation,  whether 
note,  bond,  or  mortgage,  and  there  is  nothing  on  the  face  of  the 
paper,  by  which  the  debt  is  evidenced,  showing  that  the  company 
has  overstepped  the  limits  of  its  power,  the  corporation  is  estopped 
from  denying  that  which,  by  assuming  to  make  the  contract,  it 
had  virtually  affirmed.1 

24.  When  the  authority  to  mortgage  is  coupled  with  a 
condition  for  the  benefit  of  the  state,  the  state  alone  can  enforce 
it.  An  act  authorizing  a  company  to  borrow  money  and  mort- 
gage its  property  to  secure  the  payment  of  it,  upon  condition  of 
paying  or  securing  certain  bonds  issued  to  the  company  by  the 
state,  when  accepted  by  the  company,  is  a  contract  between  the 
company  and  the  state,  but  is  not  a  contract  between  the  com- 
pany and  the  holders  of  the  state  bonds  referred  to,  and  they 
cannot  maintain  an  action  thereon  against  the  company.  There 
was  originally  no  relation  of  debtor  and  creditor  between  the  com- 
pany and  the  bondholder,  and  the  act  did  not  create  any  such  re- 
lation. Upon  the  failure  of  the  company  to  fulfil  the  condition 
on  which  the  privilege  accorded  by  the  act  was  granted,  it  be- 
came amenable  to  the  state  and  not  to  strangers  to  the  contract.2 

25.  Forfeiture  of  the  charter  of  a  corporation.  —  When  the 
charter  of  a  railroad  company  provides  that  unless  the  road  be  com- 
pleted by  a  certain  day  the  company  shall  forfeit  to  the  state  its 
corporate  franchises  and  rights,  together  with  its  road  and  all  its 
property,  and  the  company  having  authority  by  its  charter  to  issue 
bonds  secured  by  mortgage  exercises  this  power,  but  failing  to 
complete  the  road,  the  state  proceeds  to  declare  the  charter  for- 
feited, and  to  take  possession  of  the  road  and  turn  it  over  to  per- 
sons who  originally  subscribed  money  for  it,  the  state  takes  the 
property  and  franchises  free  from  the  incumbrance  of  the  mort- 
gage The  authority  to  make  the  mortgage  and  the  condition  of 
forfeiture,  being  parts  of  the  same  statute,  must  be  construed  to- 

1   Hays  v.  Galion  Gas  Light  &  Coal  Co.     Monument  Nat.  Bank  v.  Globe  Works,  10* 
29  Ohio  St.  330;  Bissell  v,  Mich.  Smith.  &     Mass.  57.      See  Chapters  vi.,  vii. 
North.   Iinl.   Ii.  ];.  Co.'s  22  N.  Y.  289;        2  Stuart  v.  James  River  &  Kanawha  Co. 

24   Gratt.    (Va.)    294. 

25 


§  26.]  POWER    OF   CORPORATIONS. 

getlier.  If  the  act  should  be  construed  as  investing  the  company 
with  the  right  to  aliene  or  mortgage  all  its  franchises,  rights,  and 
property,  free  from  the  right  of  the  state  to  declare  a  forfeiture  of 
the  same,  the  act  would  be  in  part  nullified  ;  for  in  that  case  the 
very  property  which  is  to  be  forfeited  to  the  state  becomes  vested 
in  others  by  the  mortgage,  and  nothing  is  left  upon  which  the 
forfeiture  could  operate.  The  idea  that  only  the  equity  of  re- 
demption is  subject  to  forfeiture  is  also  repugnant  to  the  provision 
that  the  road  and  all  its  property  shall  be  forfeited.1 

Of  course  such  a  provision  for  the  forfeiture  of  the  charter  of  a 
company  would,  if  known,  prevent  the  sale  of  the  company's  funds 
in  the  market.  The  loan  could  be  disposed  of  only  to  persons 
having  a  personal  interest  in  the  company,  or  personal  confidence 
in  its  officers.  Whether  purchasers  of  such  bonds  had  actual  no- 
tice of  the  restriction  of  the  company's  power  of  executing  a  mort- 
gage or  not,  they  would  in  law  be  chai^geable  with  such  notice. 
They  must  be  presumed  to  know  the  conditions  annexed  to  the 
grant  of  power  made  by  the  charter  or  statute  under  which  the 
corporation  was  organized.  The  purchasers  of  such  bonds  cannot 
claim  the  position  of  bond  fide  holders  without  notice  of  the  rights 
and  equities  of  the  state. 

II.  Statutes  authorizing  Railroad    Companies   to  mortgage  their 
Property  and  Franchises. 

26.  General  statement.  —  In  recognition  of  the  doctrine  that 
legislative  authority  is  essential  to  the  making  of  a  valid  mort- 
gage by  a  corporation  chartered  for  public  purposes,  and  to  this 
end,  having  important  privileges  granted  them,  general  laws  have 
been  enacted  in  almost  all  the  American  States  conferring  upon 
railroad  corporations  the  power  to  mortgage  their  property  and 
franchises.  These  corporations  are  so  numerous  and  their  func- 
tions so  important,  not  only  has  the  public  convenience  demanded 
that  there  should  be  general  laws  upon  the  subject  doing  away 
with  the  necessity  of  special  legislation,  so  often  as  such  corpora- 
tions may  have  occasion  to  exercise  this  power,  but  also  has  the 
public  welfare  demanded  that  the  authority  conferred  should  be 
uniform,  and  that  it  should  be  regulated  and  restricted  in  a  uni- 
form manner.  • 

i  Silliman  v.  Fredericksburg,  Orange  &  Charlottesville  E.  R.  Co.  27  Gratt.  (Va.) 
119. 

26 


STATUTES   AUTHORIZING   MORTGAGES.  [§  27. 

A  statement  of  the  statutes  upon  this  subject  in  the  several 
states  is  given  because  they  are  the  foundation  of  most  of  the  rail- 
road mortgages  now  existing  in  this  country,  and  will  be  the  foun- 
dation of  many  others  yet  to  be  made.  That  similar  statutes  do 
not  exist  in  relation  to  mortgages  by  other  corporations  arises 
from  the  fact  that  there  are  veiw  few  other  corporations  that  stand 
in  the  same  relation  to  the  public  that  railroad  companies  do,  hav- 
ing cor*porate  privileges  which  they  cannot  transfer.  In  the  few 
instances  of  corporations  having  similar  public  duties  and  privi- 
leges, such  for  instance  as  canal  companies,  special  legislation  is 
adequate.  In  a  few  states,  authority  to  mortgage  is  still  given  to 
railroad  companies  by  charter  or  by  special  act. 

Not  less  important  than  legislative  authority  to  railroad  com- 
panies to  give  mortgages  of  their  property  and  privileges  is  legis- 
lative authority  to  those  who  may  become  purchasers  under  such 
mortgages  to  organize  themselves  as  corporations,  so  that  they 
can  adequately  use  and  enjoy  what  they  have  purchased  ;  and, 
accordingly,  statutes  for  this  purpose  have  been  enacted  in  nearly 
all  the  states.     These  will  be  given  in  a  subsequent  chapter.1 

27.  Alabama.2  —  Any  railroad  corporation  may  borrow  money 
to  an  amount  not  exceeding  its  authorized  capital  stock,  at  a  rate 
of  interest  not  greater  than  seven  per  cent.,  and  may  execute 
bonds  or  promissory  notes  therefor  in  sums  of  not  less  than  one 
hundred  dollars,  and,  to  secure  the  payment  thereof,  may  pledge 
or  mortgage  the  personal  and  real  property  and  income  of  such 
company,  together  with  its  franchise;  and  any  such  mortgage, 
deed  of  trust,  or  other  security,  vests  in  the  mortgagee  or  trustee 
full  power  to  sell  and  convey  the  road-bed,  franchise,  income,  or 
other  property  conveyed  in  accordance  with  the  provisions  of  such 
mortgage,  deed  of  trust,  or  other  security.3 

Any  railroad  company  in  the  state  may  sell,  negotiate,  mort- 
gage, or  pledge  its  bonds  or  notes,  as  well  as  any  bonds,  notes, 
scrip,  or  certificates,  for  the  payment  of  money  or  property, 
which  it  may  have  received  as  donations,  or  in  payment  of  sub- 
scriptions to  its  capital  stock,  or  for  other  dues,  at  such  time  and 
such  places,  either  within  or  without  the  state,  and  at  such  rates 

1  Ch.  xxiii.  them  made  before  the  21st  day  of  Fcbru- 

-  Code  I87C,  §§  2048,  2049,  2051,  2052.  ary,  1860,  are  legalized  and  declared  valid, 

3  Mortgages  and  deeds  of  trust  executed  upon  certain  conditions,  §  1058. 

before  January   1,    18G0,  and  sales  under 

27 


§§  28,  29.]  POWER    OF   CORPORATIONS. 

or  prices  as  it  may  deem  conducive  to  its  interests  ;  and  if  such 
notes  or  bonds  are  sold  at  a  discount,  they  and  the  securities  for 
their  payment  are  as  valid  as  if  the  sale  had  been  at  par. 

But  the  Constitution  of  the  state  prohibits  the  issuing  of  stock 
or  bonds  by  any  corporation  except  for  money,  labor  done,  or 
money  or  property  actually  received  ;  and  all  fictitious  increase  of 
stock  or  indebtedness  is  void.  The  stock  and  bonded  indebted- 
ness shall  not  be  increased,  except  in  pursuance  of  general  laws, 
nor  without  the  consent  of  the  persons  holding  the  larger  amount 
in  value  of  stock,  first  obtained  at  a  meeting  to  be  held  after 
thirty  days'  notice  given  in  pursuance  of  law.1 

28.  Arkansas.2  —  A  railroad  company  has  power  to  borrow 
money  on  the  credit  of  the  corporation,  not  exceeding  its  author- 
ized capital  stock,  at  a  rate  of  interest  not  exceeding  seven  per 
cent,  per  annum,  and  to  execute  its  bonds  therefor,  in  sums  of 
five  hundred  or  one  thousand  dollars,  and  to  secure  the  payment 
thereof  may  pledge  the  property,  both  real  and  personal,  and  in- 
come of  such  company,  and  may  execute  a  deed  of  mortgage  or 
other  instrument  of  writing ;  and  such  company  is  authorized  to 
sell,  negotiate,  pledge,  or  mortgage  such  bonds  for  the  benefit  of 
such  company,  and  at  such  times  and  in  such  places,  either  within 
or  without  this  state,  and  at  such  rates  and  for  such  prices  as,  in 
the  opinion  of  the  directors  of  the  corporation,  will  best  advance 
the  interests  of  such  company.  The  Constitution  of  the  state  pro- 
hibits the  issuing  of  bonds  except  for  money  or  property  actually 
received  or  labor  done,  and  all  fictitious  indebtedness  is  declared 
void.  The  bonded  indebtedness  cannot  be  increased  except  in 
pursuance  of  general  laws,  nor  until  the  consent  of  the  persons 
holding  the  larger  amount  in  value  of  stock  shall  be  obtained,  at 
a  meeting  held  after  notice  given,  for  a  period  not  less  than  sixty 
days,  in  pursuance  of  law.3 

29.  California.4  —  Any  railroad  corporation  may  borrow,  on 
the  credit  of  the  corporation,  and  under  such  regulations  and  re- 

1  Constitution  of  1875,   art.  xiii.  §  6;         3  Const,  of  1874,  art.  xii.  sec.  8. 

Code  1876,  p.  148.  For  manner  of  giving  4  Civil  Code,  §§456,457,  Codes  &  Stat. 
notice,  &c,  see  §§  2031-2035  of  Code.  1876,  §§  5456,  5457. 

2  Dig.  1874  sec.  4970;  Act  of  Jan.  22, 
1855,  §  7. 

28 


STATUTES   AUTHORIZING   MORTGAGES.  [§§  30,  31. 

strictions  as  the  directors  thereof,  by  unanimous  concurrence,  may 
impose,  such  sums  of  money  as  may  be  necessary  for  constructing 
and  completing  its  railroad,  and  may  issue  and  dispose  of  bonds 
or  promissory  notes  therefor,  in  denominations  of  not  less  than 
five  hundred  dollars,  and  at  a  rate  of  interest  not  exceeding  ten 
per  cent,  per  annum  ;  and  may  also  issue  bonds  or  promissory 
notes,  of  the  same  denomination  and  rate  of  interest,  in  payment 
of  any  debts  or  contracts  for  constructing  and  completing  the 
road,  with  its  equipments  and  all  else  relative  thereto.  The 
amount  of  bonds  or  promissory  notes  issued  for  such  purposes 
must  not  exceed,  in  all,  the  amount  of  the  capital  stock  ;  and  to 
secure  the  payment  of  such  bonds  or  notes,  it  may  mortgage  its 
corporate  property  and  franchise.  The  directors  must  provide  a 
sinking  fund  to  be  specially  applied  to  the  redemption  of  such 
bonds  on  or  before  their  maturity,  and  may  also  confer  on  any 
holder  of  any  bond  or  note  so  issued,  for  money  borrowed,  or 
in  payment  of  any  debt  or  contract  for  the  construction  and 
equipment  of  such  road,  the  right  to  convert  the  principal  due  or 
owing  thereon  into  stock  of  such  corporation,  at  any  time  within 
eight  years  from  the  date  of  such  bonds,  under  such  regulations 
as  the  directors  may  adopt. 

30.  Colorado.1  —  Any  railway  corporation  has  the  power  from 
time  to  time  to  borrow  such  sums  of  money  as  may  be  necessary 
for  completing,  furnishing,  improving,  or  operating  its  railway, 
and  to  issue  and  dispose  of  its  bonds,  for  any  amount  so  borrowed, 
and  to  mortgage  its  corporate  property  and  franchise  to  secure 
the  payment  of  any  debt  contracted  by  such  corporation,  for  the 
purposes  aforesaid,  in  such  manner  as  the  shareholders  represent- 
ing a  majority  of  the  stock  of  any  such  corporation  may  direct. 

The  Constitution  of  the  state  provides  that  no  corporation  shall 
issue  stock  or  bonds  except  for  labor  done,  services  performed,  or 
money  or  property  actually  received,  and  that  all  fictitious  increase 
of  stock  or  indebtedness  shall  be  void.2 

31.  Connecticut.3  —  Every  railroad  company  may  borrow  money, 
and  may  secure  the  repayment  of  the  same  by  its  bonds,  signed 


i  Gen.  Laws  1877,  §§  801,306.  °  Gen.  Stat.  Is7r>,  pp.  3:12,  333. 

2  Const.  1876,  art.  xv.  sue.  9. 

29 


§  32.]  POWER    OF    CORPORATIONS. 

by  its  president  and  countersigned  by  its  treasurer  ;  but  before 
being  issued,  the  bonds  shall  be  registered  in  the  office  of  the  con- 
troller, and  a  certificate  thereof  shall  appear  on  the  face  of  each 
bond  ;  and  the  controller  shall  cancel  any  bonds  so  registered, 
which  may  be  brought  to  him  for  that  purpose,  and  enter  said  act 
of  cancelling  in  his  register;  but  no  railroad  company  shall  issue 
any  bond  of  a  less  denomination  than  one  hundred  dollars,  nor 
have  bonds  outstanding  at  any  one  time  to  a  greater  amount  than 
one  third  of  the  sum  which  its  president  and  chief  engineer  shall 
certify,  under  oath  to  the  controller,  has  been  actually  expended 
upon  its  road  ;  and  any  false  swearing  in  this  matter  shall  be  per- 
jury ;  and  the  controller  shall  not  permit  the  bonds  of  any  rail- 
road company,  registered  in  his  office  and  uncancelled,  to  exceed 
the  amount  limited  in  this  section.  The  company  may  dispose 
of  its  bonds  as  its  stockholders  may  authorize.  The  company 
may  secure  such  bonds  by  a  mortgage  of  its  property,  or  any 
part  thereof,  by  deed  duly  executed  by  its  president,  under  the 
corporate  seal,  to  the  treasurer  of  the  state  and  his  successors 
in  office,  in  trust  for  the  holders  of  said  bonds,  and  recorded  in 
the  office  of  the  secretary  of  this  state.  It  may  include  in  such 
mortgage  all  or  any  part  of  its  rolling  stock,  locomotives,  and  cars, 
whether  then  owned  by  it  or  thereafter  acquired  ;  and  such  mort- 
gage is  valid  and  effectual  as  to  all  property  so  included,  and  may 
be  foreclosed  in  the  same  manner  as  ordinary  mortgages  of  real 
estate.1 

32.  Dakota  Territory.2  —  Every  railroad  corporation  has  power 
to  mortgage  or  execute  deeds  of  trust  of  the  whole  or  any  part  of 
its  property  and  franchises,  including  any  lands  or  other  property 
granted  to  such  corporation  by  the  United  States,  to  secure  money 
borrowed  by  it  for  the  construction  and  equipment  of  its  road, 
and  may  issue  its  corporate  bonds  in  sums  not  less  than  five  hun- 
dred dollars, —  secured  by  such  mortgages  or  deeds  of  trust, — 
payable  to  bearer  or  otherwise ;  and  if  payable  to  bearer,  negoti- 
able by  delivery,  bearing  interest  at  a  rate  not  to  exceed  ten  per 
cent,  per  annum,  convertible  into  stocks,  and  may  sell  them  at 
such  rates  or  prices  as  it  may  deem  proper  ;  and  if  such  bonds 
be  sold  below  their  nominal  or  par  value,  they  are  valid  and  bind- 

i  Acts  1877,  c.  38.  2  Rev.    Codes  1877,  pp.  303  and  304; 

Civil  Code,  §§  464,  465. 

30 


STATUTES   AUTHORIZING   MORTGAGES.  [§§  83-35. 

ing  upon  the  corporation,  and  no  plea  of  usury  can  be  put  in 
or  allowed  in  behalf  of  such  corporation  in  any  action  or  pro- 
ceedings upon  the  same  ;  the  principal  and  interest  upon  such 
bonds,  or  either  of  them,  may  be  made  payable  within  or  without 
the  territory.  Such  corporation  has  power  to  borrow  money  on 
the  credit  of  the  corporation,  and  may  execute  bonds  or  prom- 
issory notes  therefor,  and,  to  secure  the  payment  thereof,  may 
pledge  its  property  and  income. 

33.  Delaware.  —  There  is  no  general  statute  in  this  state  for 
the  organization  of  railroad  companies  ;  but  these  are  created  by 
special  acts  which  provide  for  their  borrowing  money  and  mort- 
gaging the  corporate  property  and  franchises  as  security. 

34.  District  of  Columbia.1 — Any  railroad  company  may,  from 
time  to  time,  borrow  such  sums  of  money  as  it  may  deem  neces- 
sary for  completing  or  operating  its  railroad,  and  issue  and  dispose 
of  its  bonds  for  any  amounts  so  borrowed,  for  such  sums  and  at 
such  rates  of  interest  as  may  be  agreed  upon,  and  mortgage  its 
corporate  property  and  franchises  to  secure  the  payment  of  any 
debt  contracted  by  the  company  ;  and  the  directors  of  the  company 
may  confer  on  any  holder  of  any  bond  issued  for  money  so  bor- 
rowed, the  right  to  convert  the  principal  due  or  owing  thereon 
into  stock  of  the  company,  at  any  time  not  exceeding  fifteen  years 
from  the  date  of  such  bond,  under  such  regulations  as  the  com- 
pany may  adopt  ;  and  the  company  may  sell  its  bonds  whenever 
it  may  deem  proper,  and  such  sales  will  be  as  valid  as  if  such 
bonds  should  be  sold  at  par  value.  But  such  corporation  shall 
not  have  power  to  issue  any  bonds  or  to  execute  any  mortgages 
upon  its  property  or  franchises,  until  at  least  one  half  of  the  cap- 
ital stock  shall  have  been  fully  paid. 

35.  Florida.2  —  Among  the  general  powers  of  all  corporations 
is  included  the  right  to  hold,  buy,  mortgage,  or  otherwise  convey 
such  real  and  personal  estate  as  the  purposes  of  the  corporation 
shall  require,  not  exceeding  the  amount  limited  in  its  articles  of 
incorporation. 

The  general    railroad    law3    provides  that   every    corporation 

i  Kcv.  St;ir.  1874,  §  (in.  8  Laws  1874,  ch.  1987,  sec.  9,  par.  10. 

2  Bush'a  Dig.  1872,  p.  1G5. 

31 


§§  36,  87.]  POWER    OF   CORPORATIONS. 

formed  under  that  act  shall  be  empowered  to  borrow  such  sum  or 
sums  of  money  at  such  rates  of  interest  and  upon  such  terms  as 
such  company  or  its  board  of  directors  shall  authorize  or  agree 
upon,  and  may  deem  necessary  or  expedient,  and  may  execute 
one  or  more  trust  deeds  or  mortgages,  or  both,  if  occasion  may 
require,  and  any  railroads,  canal  or  canals,  constructed  or  in  proc- 
ess of  construction  by  said  company  for  the  amount  or  amounts 
borrowed  or  owing  by*such  company,  as  its  board  of  directors 
shall  deem  expedient ;  and  such  company  may  make  such  provi- 
sions in  such  trust  deed  or  mortgage  as  it  may  think  proper 
for  transferring  its  railroad  track  or  canal,  right  of  way,  depots, 
grounds,  rights,  privileges,  franchises,  immunities,  machine  houses, 
rolling  stock,  furniture,  tools,  implements,  appendages  and  appur- 
tenances used  in  connection  with  such  railroad  or  railroads,  canal 
or  canals,  in  any  manner  whatsoever  then  belonging  to  said  com- 
pany, or  which  shall  thereafter  belong  to  it,  as  security  for  any 
bonds,  debts,  or  sums  of  money  that  may  be  secured  by  such  trust 
deed  or  mortgage. 

36.  Georgia.  —  Railroad  companies  are  organized  under  special 
charters,  which  provide  for  their  borrowing  money  and  mortgag- 
ing the  corporate  property  and  franchises  as  security. 

37.  Illinois.1  —  Any  railroad  company  has  power  from  time  to 
time  to  borrow  such  sums  of  money  as  may  be  necessary  for  com- 
pleting, finishing,  improving,  or  operating  its  railway,  and  to  issue 
and  dispose  of  its  bonds  for  any  amount  so  borrowed,  and  to 
mortgage  its  corporate  property  and  franchises  to  secure  the  pay- 
ment of  any  debt  contracted  by  such  corporation  for  the  pur- 
poses named  ;  but  the  concurrence  of  the  holders  of  two  thirds  in 
amount  of  the  stock  of  such  corporation  is  necessary  to  the  va- 
lidity of  any  such  mortgage ;  and  the  order  or  resolution  for  such 
mortgage  must  be  recorded  in  the  office  of  the  recorder  of  deeds 
in  each  county,  through  or  into  which  such  railway  is  proposed 
to  be  run,  and  in  the  office  of  the  secretary  of  state ;  and  the 
directors  of  such  corporation  are  empowered,  in  pursuance  of  any 
such  order  or  resolution,  to  confer  on  any  holder  of  any  bond 
for  money   so    borrowed   as   aforesaid    the  right  to  convert   the 

1  Rev.  Stat.  1877,  eh.  114;  §  20,  and  see  prior  to  March  1,  1872,  which  may  be 
§§  30-33  as  to  loans  by  companies  formed     made  in  similar  manner. 

32 


STATUTES   AUTHORIZING   MORTGAGES.  [§§  38,  39. 

principal  due,  or  owing  thereon,  into  stock  of  such  corporation,  at 
any  time  not  exceeding  ten  years  after  the  date  of  such  bond, 
under  such  regulations  as  may  be  provided  in  the  by-laws  of  such 
corporation.  The  Constitution,  however,  prohibits  the  issuing  of 
stock  or  bonds  by  any  railroad  corporation,  except  for  money, 
labor,  or  property  actually  secured,  and  applied  to  the  purposes 
for  which  such  corporation  was  created  ;  and  all  fictitious  stock 
or  indebtedness  is  void.1 

38.  Indiana.2 —  Any  railroad  company  may,  from  time  to  time, 
borrow  such  sums  of  money  as  it  may  deem  necessary  for  complet- 
ing or  operating  its  railroad,  and  issue  and  dispose  of-  its  bonds 
for  any  amounts  so  borrowed,  for  such  sums  and  at  s^'h'W$|"fjf^j5  £  i*, 
interest  as  is  allowed  by  the  laws  of  the  state  where'  s^iy£&Wjq>ct     t  , 
is  made,  and  mortgage  its    corporate  property  and  ?franc$i&e  to  ^  TGJ>£^ 
secure  the  payment  of  any  debt  contracted  by  such  company  ;  UBfiAfiY 
the  directors  of  the  company  may  confer  on  any  ^holder  ®f  -aft}, 
bond  issued  for  money  borrowed  as  aforesaid,  the  right  to  convert 
the  principal  due  or  owing  thereon  into  stock  of  said  company,  at 
any  time  not  exceeding  fifteen  years  from  the  date  of  said  bond, 
under  such   regulations    as  the  company  may  adopt ;    and    such 
company  may  sell  its  bonds,  either  within  or  without  the  state,  at 
such  rates  and  prices  as  are  permitted  by  law,  and  such  sales  are 
as  valid  as  if  such  bonds  had  been  sold  at  par  value. 

39.  Iowa.3  —  Any  railway  corporation  has  power  to  issue  its 
bonds  for  the  construction  and  equipment  of  its  railway,  in  sums 
not  less  than  fifty  dollars,  payable  to  bearer  or  otherwise,  and 
'  bearing  interest  at  a  rate  not  exceeding  ten  per  cent,  per  annum, 
and  to  make  the  same  convertible  into  stock,  and  to  sell  the  same 
at  such  rates  or  prices  as  is  deemed  proper ;  if  such  bonds  are  sold 
below  the  par  value  thereof,  they  nevertheless  are  valid  and  bind- 
ing, and  no  plea  of  usury  is  allowed  such  corporation  in  any  action 
or  proceeding  brought  to  enforce  the  collection  of  said  bonds  ; 
such  corporation  may  also  secure  the  payment  of  said  bonds  by 
executing  mortgages  or  deeds  of  trust  of  the  whole  or  any  part  of 
its  property  and  franchises. 

1  Constitution  of  1870,  art.  11,  §  14.  3  Code  of  Iowa,    187.'!,   §§   1283,   1284, 

a  Revision    1876,  vol.  1,  p.  706;   Act  of     1286,1287,1301. 

May    11,  IS'>2. 

3  33 


§§  40-42.]  POWER    OF    CORPORATIONS. 

Such  mortgages  or  deeds  of  trust  may,  by  their  terms,  include 
and  cover,  not  only  the  property  of  the  corporation  making  them 
at  the  time  of  their  date,  but  property  both  real  and  personal 
which  may  thereafter  be  acquired,  and  are  as  valid  and  effectual 
for  that  purpose  as  if  the  property  were  in  possession  at  the  time 
of  the  execution  thereof. 

Any  such  corporation,  with  the  assent  of  two  thirds  of  all  the 
stockholders  in  interest,  may  issue,  in  payment  of  debts,  preferred 
stock,  not  exceeding  ten  thousand  dollars  for  each  mile  of  railway 
constructed,  which  stock  shall  be  entitled  to  such  dividends  as  the 
directors  of  the  corporation  may  determine,  not  exceeding  eight 
per  cent,  per  annum,  if  the  same  is  earned  in  any  one  year,  after 
pkymen'i;  :0f  .all  interest  on  the  bonds  of  the  corporation,  before 
any  dividend  is  made  to  the  common  stock. 

Such' ptef  err  eel  stock,  and  any  income  or  mortgage  bond  of  the 
corporation,  -shall,  at  the  option  of  the  holder,  be  convertible  into 
1  Common  sftfock  in  such  manner  and  on  such  terms  as  the  board  of 
'directors  thereof  may  prescribe  ;  but  the  aggregate  amount  of  the 
common  and  preferred  stock  shall  not  exceed  the  total  amount  of 
stock  which  the  corporation  may  be  by  law,  or  the  articles  of  in- 
corporation thereof,  authorized  to  issue.  Any  contract,  lease,  or 
benefit  derived  therefrom  may  be  mortgaged  for  the  purpose  of 
securing  construction  bonds,  in  the  same  manner  as  other  property 
of  the  corporation. 

40.  Kansas.1  —  Every  railway  corporation  has  power  from 
time  to  time  to  borrow  such  sums  of  money  as  may  be  necessary 
for  completing  and  finishing  or  operating  its  railway,  and  to  issue 
and  dispose  of  its  bonds  for  any  amount  so  borrowed,  and  to  mort- 
gage its  corporate  property  and  franchises  to  secure  the  payment 
of  any  debt  contracted  by  the  corporation  for  the  purpose  afore- 
said. 

41.  Kentucky.  —  There  is  no  general  law  for  the  organization 
of  railroad  companies.  The  power  to  borrow  money  and  to  mort- 
gage the  corporate  property  and  franchises  is  conferred  by  the 
private  charters. 

42.  Louisiana.2  —  In   addition   to   the   powers   conferred   by 

*  Dassler's  Stat.  1876,  voJ.  1,  p.  167..  *  R.  S.  1870,  §§  692,  693,  2396,  2397. 

U 


STATUTES   AUTHORIZING   MORTGAGES.  [§  43. 

law  upon  railroad  companies,  any  railroad  company  established 
under  the  laws  of  this  state  may  borrow  from  time  to  time  such 
sum  of  money  as  may  be  required  for  the  construction  or  repair 
of  any  railroad,  and  for  this  purpose  may  issue  its  bonds  or  ob- 
ligations, secured  by  mortgage  upon  the  franchises  and  all  the 
property  of  said  companies,  and  payable  at  such  times  and  places 
as  the  president  and  directors  may  designate,  with  power  to  sell, 
pledge,  or  otherwise  dispose  of  said  bonds,  on  such  terms  as  the 
president  and  directors  may  deem  expedient. 

A  mortgage  so  made  by  any  company  is  binding  in  the  several 
parishes  through  which  a  railroad  may  pass,  by  the  record  of  the 
mortgage  in  such  parishes,  and  such  mortgage  need  not  be  rein- 
scribed  to  continue  it  in  force.  The  president  and  directors  of 
any  company  may  confer  on  the  holder  of  any  bond  or  bonds 
issued  for  money  for  the  use  of  said  company  the  right  to  convert 
the  principal  due  thereon  into  the  stock  of  said  company  at  any 
time,  not  exceeding  ten  years  from  the  date  of  said  bond  or  bonds, 
under  such  regulations  as  the  president  and  directors  may  adopt ; 
but  no  increase  in  the  capital  stock  of  any  railroad  company  shall 
be  authorized  or  implied  from  this  provision. 

Any  railroad  company  established  under  the  laws  of  this  state 
may,  to  secure  the  payment  of  any  obligation  contracted  by  such 
company  for  the  construction  of  the  road,  mortgage  its  road,  in 
whole  and  in  part ; 1  and  such  mortgage,  if  made  of  the  entire 
road,  shall  bear  upon  the  entire  road,  though  the  same  be  not 
completed  at  the  time  the  mortgage  was  made  ;  and  such  mort- 
gage may  also  be  made  to  bind  the  appurtenances  of  said  road, 
its  warehouses,  depots,  water  stations,  locomotives,  and  the  like. 

A  mortgage  made  by  any  of  the  companies  binds  the  road,  its 
warehouses,  depots,  water  stations,  locomotives,  and  other  ap- 
purtenances that  may  be  mortgaged  in  the  several  parishes  where 
the  same  may  be,  only  by  the  record  of  the  mortgage  in  each 
parish,  but  such  mortgage  need  not  be  reinscribed  to  continue  it 
in  force. 

43.  Maine.2 —  A  railroad  corporation,  to  obtain  money  to  build 
or  furnish  its  road,  or  to  pay  debts  contracted  for  that  purpose, 
may  issue  its  bonds  in  sums  not  less  than  one  hundred  dollars, 

1  Ibid.  §§  720,  727,  2427,  2428.  2  R.  S.  1871,  j>.  454;  Acta  1871,  vh. 

198. 

35 


§§  44,  45.]  POWER    OF   CORPORATIONS. 

bearing  interest  secured  in  such  manner  as  it  deems  expedient, 
and  binding  upon  it  though  sold  at  less  than  par  value,  and  no  de- 
fence of  usury  can  for  that  cause  be  admitted. 

44.  Maryland.1  —  A  railroad  company  has  power  to  borrow 
money  on  the  credit  of  the  corporation,  not  exceeding  its  author- 
ized capital  stock,  at  a  rate  of  interest  to  be  agreed  upon  by  the 
respective  parties,  and  may  execute  bonds  or  promissory  notes 
therefor,  in  sums  of  not  less  than  one  hundred  dollars,  and,  to 
secure  the  payment  thereof,  may  pledge  the  property  and  income 
of  such  company.  The  power  of  a  railroad  company  to  mortgage 
its  property  without  legislative  authority  has  never  been  recognized 
by  the  courts.  It  has  been  repeatedly  held,  however,  that  without 
such  authority  a  railroad  company  cannot  lease  or  aliene  its  road 
or  other  property.2 

45.  Massachusetts.3  —  Any  railroad  corporation,  by  a  vote  at 
a  meeting  called  for  the  purpose,  may  issue  bonds  to  provide 
means  for  funding  its  floating  debt,  or  for  the  payment  of  money 
borrowed  for  any  lawful  purpose,  and  may  mortgage  or  pledge  as 
security  for  the  payment  of  such  bonds  any  part  or  all  of  its  road, 
equipment,  or  franchise,  or  any  part  or  all  of  its  property,  real  or 
personal.  Such  bonds  may  be  either  "  coupon  bonds,"  or  "  reg- 
istered bonds,"  as  may  be  determined  by  such  vote,  in  sums  of 
not  less  than  one  hundred  dollars  each,  payable  at  periods  not  ex- 
ceeding twenty  years  from  the  date  thereof,  and  bearing  interest 
not  exceeding  the  rate  of  seven  per  centum  a  year,  payable  an- 
nually or  semi-annually,  to  an  amount  which,  including  that  of 
bonds  previously  issued,  shall  not  exceed  for  the  aggregate  of  all 
bonds,  whether  registered  or  coupon,  the  capital  stock  of  the  cor- 
poration actually  paid  in  at  the  time  the  bonds  are  issued.  They 
must  be  recorded  by  the  treasurer  in  books  to  be  kept  at  his  of- 
fice. No  bond  shall  be  issued  unless  approved  by  some  person 
appointed  for  that  purpose,  who  shall  certify  that  it  is  properly 
issued  and  recorded  as  aforesaid. 

1  Laws  1870,  p.  903.  utes  see  Acts  1854,  ch.  286;    G.  S.  1860, 

2  State  v.  Consolidation    Coal    Co.  46     ch.  63,  §§  120-123.     Bonds  i>sued  in  viola- 
Mil.  1,  10.  tion  of  these  statutes  are  void.     East  Bos- 

a  Acts  1874,  ch.  372,  §§    49,50,51,52;     ton   Freight    11.   R.   Co.  v.  Hubbard,    10 
Acts    1875,  ch.   58.      For   previous  stat-     Allen    (Mass.),   459  ;    Commonwealth   v. 


Smith,  lb.  448. 


36 


STATUTES   AUTHORIZING   MORTGAGES.  [§  45. 

At  the  request  of  the  owner  or  holder  of  any  coupon  bonds 
lawfully  issued,  other  than  bonds,  the  payment  of  which  has  been 
or  shall  be  guaranteed  by  the  Commonwealth,  the  railroad  corpo- 
ration which  issued  such  coupon  bonds  may  issue  registered  bonds 
in  exchange  for  and  in  lieu  of  them,  upon  such  terms  and  under 
such  regulations  as  may  be  prescribed  by  the  directors  of  the  cor- 
poration, with  the  consent  and  approval  of  the  trustees,  to  whom 
any  mortgage  or  pledge  shall  have  been  executed  ;  and  such  reg- 
istered bonds  shall,  with  the  exception  of  the  coupons,  correspond 
in  all  respects  with  the  coupon  bonds  for  which  the  same  are  ex- 
changed, and  shall  be  in  conformity  with  all  laws  authorizing  the 
issue  of  the  coupon  bonds.  Such  exchange  shall  not  affect  any 
mortgage  or  pledge  given  as  security  for  the  payment  of  such 
coupon  bonds,  and  such  mortgage  or  pledge  shall  remain  in  full 
force  as  security  for  such  registered  bonds  ;  and  the  coupon  bonds 
shall  be  cancelled  and  destroyed  at  the  same  time  that  the  regis- 
tered bonds  are  issued  in  lieu  thereof. 

No  railroad  corporation  which  has  previously  issued  bonds  shall 
subsequently  make  or  execute  any  mortgage  upon  its  road,  equip- 
ment, and  franchise,  or  any  of  its  property,  real  or  personal,  with- 
out including  in  and  securing  by  such  mortgage  all  bonds  previ- 
ously issued,  and  all  preexisting  debts  and  liabilities  of  the  corpo- 
ration. 

All  bonds  or  notes  issued  by  a  railroad  corporation  shall  be 
binding  and  collectible  in  law,  notwithstanding  such  bonds  or 
notes  were  negotiated  and  sold  by  the  corporation  or  its  agents 
at   Less  than   par. 

No  railroad  corporation  shall  hereafter  issue  any  bonds,  coupon 
notes,  or  other  evidences  of  indebtedness,  payable  at  periods  of 
more  than  twelve  months  from  the  date  thereof,  except  as  above 
provided.1 

A  railroad  corporation  can  take  or  guarantee  the  bonds  of  an- 
other corporation,  only  by  special  authority  of  the  legislature,  ex- 
cept that  a  railroad  corporation  may  guarantee,  to  an  amount  not 
exceeding  five  per  centum  of  its  capital,  the  bonds  of  any  corpo- 
ration of  this  slate,  formed  for  the  purpose  of  carrying  freight, 
passengers,  and  mails  between  any  part  of  the  Commonwealth 
and  Europe  ;  or  it  may,  upon  adequate  security,  issue  its  own 
bonds    to   the  same  amount;  except,  also,  that   each    of  two  com- 

1   Acts  1H70,  ch.  170,  §  1. 

37 


§§  46,  47.]  POWER    OF   CORPORATIONS. 

parries  having  connecting  roads  may  guarantee  the  bonds  of  the 
other  upon  such  terms  and  to  such  an  extent  as  may  be  author- 
ized at  a  meeting  called  for  the  purpose,  provided  the  bonds  so 
guaranteed  do  not  exceed  the  amount  of  the  capital  stock  of 
such  other  corporation  actually  paid  up  in  cash  ;  or  a  railroad 
company  may  aid  a  branch  or  connecting  road  by  taking  its  notes 
or  bonds,  secured  by  mortgage  or  otherwise,  but  not  in  excess  of 
two  per  centum  of  its  paid  up  capital  stock,  except  by  vote  of 
the  stockholders  at  a  meeting  called  for  the  purpose.1 

46.  Michigan.2  —  Any  company  organized  under  the  general 
railroad  act  has  power  from  time  to  time  to  borrow  such  sums  of 
money  as  may  be  necessary  for  completing,  finishing,  equipping, 
or  operating  its  road,  or  any  part  thereof,  or  for  paying  any  in- 
debtedness necessarily  incurred  for  completing,  finishing,  or  oper- 
ating its  road,  or  any  part  thereof ;  and  to  issue  and  dispose  of 
its  bonds  or  obligations  for  any  amount  necessarily  borrowed  for 
such  purpose,  for  such  sums  and  for  such  rate  of  interest,  not  ex- 
ceeding ten  per  cent.,  as  it  may  deem  advisable,  and  to  mortgage 
its  corporate  property  and  franchises,  and  the  income  thereof,  or 
any  part  thereof,  to  secure  the  payment  of  any  debt  contracted, 
or  to  defray  any  expenditure  by  the  company  for  the  purpose 
aforesaid.  And  the  directors  of  any  such  company  may  confer  on 
any  holder  of  any  such  bond  or  obligation  the  right  to  convert 
the  same  into  the  stock  of  said  company,  at  any  time,  not  exceed- 
ing ten  years  from  the  date  of  said  bonds,  on  such  terms  and  un- 
der such  regulations  as  the  company  may  see  fit  to  adopt ;  and 
said  company  may  sell  its  bonds  or  obligations,  either  within  or 
without  this  state,  and  at  such  rates  and  prices  as  they  may  deem 
proper. 

47.  Minnesota.3 —  The  several  railroad  companies  of  this  state 
have  power  to  mortgage  or  execute  deeds  of  trust  of  the  whole 
or  any  part  of  their  property  and  franchises,  to  secure  money  bor- 
rowed by  them  for  the  construction  and  equipment  of  their  roads, 
and  they  may  issue  their  corporate  bonds  in  sums  of  not  less 
than  five  hundred  dollars,  secured  by  such  mortgages  or  deeds  of 
trust,  payable  to  bearer  or  otherwise ;  and  if  payable  to  bearer, 

1  Acts  1874,  §§  53-57.  3  Stat,  at   Large    1S73,  vol.    1,  p.  430; 

3  Laws  1873,  p.  527.  Act  of  March  5,  1868. 

38 


STATUTES   AUTHORIZING   MORTGAGES.  [§§  48,  49. 

negotiable  by  delivery,  bearing  interest  at  a  rate  not  to  exceed 
ten  per  cent,  per  annum,  and  convertible  into  stock  or  not,  as 
may  be  deemed  expedient ;  and  may  sell  them  at  such  rates  or 
prices  as  they  deem  proper ;  and  if  such  bonds  are  sold  below 
their  nominal  or  par  value,  they  are  valid  and  binding  on  the 
company,  and  no  plea  of  usury  can  be  put  in  or  allowed  by  said 
companies  in  any  suit  or  proceeding  upon  the  same. 

Such  mortgages  or  deeds  of  trust  may,  by  their  terms,  include 
and  cover,  not  only  the  property  of  the  companies  making  them 
at  the  time  of  their  date,  but  property,  both  real  and  personal, 
which  may  thereafter  be  acquired  by  them,  and  they  are  as  valid 
and  effectual  for  that  purpose  as  if  the  property  were  in  posses- 
sion at  the  time  of  the  execution  thereof.1 

Any  such  corporation  has  the  power  to  borrow  money  on  credit 
of  the  corporation,  and  may  execute  bonds  or  promissory  notes 
therefor,  and  to  secure  the  payment  thereof  may  pledge  the  prop- 
erty and  income  of  the  company ;  but  the  amount  of  the  indebt- 
edness or  liability  of  such  company,  exclusive  of  its  indebtedness 
secured  by  mortgage  of  its  property,  shall  not,  at  any  one  time, 
exceed  two  thirds  of  the  amount  of  its  capital  stock.  Such  cor- 
poration is  authorized  to  issue  bonds  in  lieu  and  in  payment  of 
any  bonds  of  such  company,  or  bonds  issued  and  disposed  of  for 
the  construction  of  its  line  of  road,  outstanding,  bearing  such  rate 
of  interest  as  may  be  agreed  upon.  In  case  the  articles  of  asso- 
ciation so  provide,  the  corporation  may  admit  into  the  board  of 
directors  as  members  thereof  one  or  more  persons,  to  be  chosen  by 
the  bondholders,  under  such  regulations  as  may  be  agreed  upon 
between  the  trustees  of  the  bondholders  and  such  corporation.2 

48.  Mississippi.  —  There  is  no  general  railroad  law  in  this 
state.  Power  to  borrow  and  mortgage  is  conferred  by  the  special 
charters  or  by  special  acts. 

49.  Missouri.3  —  Every  railroad  company  has  power  from  time 
to  time  to  borrow  such  sums  of  money  as  may  be  necessary  for 
completing  and  finishing  or  operating  its  railroad,  and  to  issue  and 
dispose  of  its  bonds  for  any  amount  so  borrowed,  and  to  mortgage 
the  corporate  property  and  franchises  to  secure  the  payment  of 

i  Stat,  at  Large  1873,  p.  431.  »  1  Wagner's  Stat.  1872,  p.  298. 

2  Laws  1875,  ch.  14,  §  40. 

39 


§§  50,  51.]  POWER   OF   CORPORATIONS. 

any  debt  contracted  by  the  company  for  the  purposes  aforesaid  ; 
and  the  directors  of  the  company  may  confer  on  any  holder  of  any 
bond  issued  for  money  borrowed  as  aforesaid  the  right  to  convert 
the  principal  due  or  owing  thereon  into  stock  of  said  company,  at 
any  time  not  exceeding  ten  years  from  the  date  of  the  bond, 
under  such  regulations  as  the  directors  may  see  fit  to  adopt. 

50.  Montana  Territory.1  —  Any  railroad  corporation  has  power 
to  borrow  money  on  the  credit  of  the  corporation,  to  an  amount 
not  exceeding  its  authorized  capital  stock,  at  a  rate  of  interest  to 
be  agreed  upon  by  the  respective  parties,  and  may  execute  bonds 
therefor  in  sums  of  not  less  than  one  hundred  dollars,  and  secure 
the  payment  thereof  by  mortgage  or  pledge  of  the  property  and 
income  of  such  corporation.  And  if  the  said  mortgage  shall  so 
provide,  it  shall  be  and  remain  a  valid  lien  upon  all  of  the  prop- 
erty of  said  company,  of  whatever  kind  then  existing,  or  that  may 
thereafter  be  by  it  acquired,  irrespective  of  the  law  now  in  force 
relating  to  chattel  mortgages,  and  the  same  shall  be  taken,  held, 
and  enforced  in  the  same  manner  as  mortgages  upon  real  estate 
now  are  held  and  enforced. 

51.  Nebraska.2  —  A  railroad  corporation  has  power  to  borrow 
money  on  the  credit  of  the  corporation,  and  may  execute  bonds 
or  promissory  notes  therefor,  and  to  secure  the  payment  thereof 
may  pledge  the  property  and  income  of  said  company. 

Every  railroad  company  has  power  to  mortgage  or  execute 
deeds  of  trust  of  the  whole  or  any  part  of  its  property  and 
franchises,  including  its  lands  or  other  property  granted  to  said 
company  by  the  United  States,  to  secure  money  borrowed  by  it 
for  the  construction  and  equipment  of  its  roads,  and  may  issue 
its  corporate  bonds  in  sums  not  less  than  five  hundred  dollars, 
—  secured  by  said  mortgages  or  deeds  of  trust,  —  payable  to  bearer 
or  otherwise,  and,  if  payable  to  bearer,  negotiable  by  delivery, 
bearing  interest  at  a  rate  not  to  exceed  ten  per  cent,  per  annum, 
and  convertible  into  stock,  or  not,  as  shall  be  plainly  expressed  on 
the  face  of  each  and  every  bond  so  issued  by  said  company,  and 
may  sell  them  at  such  rates  or  prices  as  they  may  deem  proper ; 
and  if  said  bonds  should  be  sold  below  their  nominal  or  par  value, 

1  Laws  1873,  p.  102,  §  14.  2  Qen.  Stat.   1873,    ch.    11,   §§   84,    117, 

118,  119. 

40 


STATUTES   AUTHORIZING   MORTGAGES.  [§  52. 

they  shall  be  valid  and  binding  upon  the  company,  and  no  plea 
of  usury  shall  be  put  in  or  allowed  in  behalf  of  the  company 
upon  any  suit  or  proceedings  upon  the  same  ;  the  principal  and 
interest  upon  such  bonds,  or  either  of  them,  may  be  made  payable 
within  or  without  this  state. 

Any  mortgage  or  deed  of  trust  made  upon  the  lands,  roads,  or 
other  property  of  any  railroad  company,  shall  bind  and  be  a  valid 
lien  upon  all  the  property  mentioned  in  such  deed  or  mortgage, 
including  rolling  stock;  and  the  purchaser,  under  foreclosure  of 
mortgage  or  trust  deed,  shall  have  and  enjoy  all  the  rights  of  a 
purchaser  on  execution  sale. 

The  Constitution  of  the  state  provides  that  no  railroad  corpora- 
tion shall  issue  any  stock  or  bonds,  except  for  money,  labor,  or 
property  actually  received  and  applied  to  the  purposes  for  which 
such  corporation  was  created,  and  all  stock,  dividends,  and  other 
fictitious  increases  of  the  capital  stock  or  indebtedness  of  any  such 
corporation  shall  be  void.  The  capital  stock  of  railroad  corpora- 
tions shall  not  be  increased  for  any  purpose,  except  after  public 
notice  for  sixty  days,  in  such  manner  as  may  be  provided  by  law.1 

52.  Nevada.2  —  A  railroad  corporation  has  power  to  borrow 
from  time  to  time  on  the  credit  of  the  corporation,  and  under 
such  restrictions  as  two  thirds  in  interest  of  the  stockholders  may 
impose,  such  sum  or  sums  of  money,  not  exceeding  in  all  the 
amount  of  its  capital  stock,  as  may  be  necessary  for  the  construc- 
tion and  equipment  of  its  road,  at  a  rate  of  interest  not  to  ex- 
ceed fifteen  per  centum  per  annum,  and  to  execute  bonds  or  prom- 
issory notes  therefor,  in  sums  not  less  than  one  thousand  dollars 
in  any  one  note  or  bond ;  and  to  secure  such  notes  or  bonds  may 
mortgage  its  corporate  property  and  franchise,  and  pledge  the 
income  of  the  company ;  and  the  directors  of  such  company  shall 
also  provide,  in  such  manner  as  may  seem  to  them  best,  a  sinking 
fund,  to  be  especially  applied  to  the  redemption  of  such  bonds 
on  or  before  their  maturity,  and  may  also  confer  on  any  holder  of 
any  bond  so  issued  for  money  borrowed,  or  in  payment  of  any 
(|,l,i  mi-  contract  for  the  construction  or  equipment  of  such  road 
as    aforesaid,  the  right    to  convert  the  principal    due    or   owing 

i  Const.  1875,     art.    11,  §   5  ;     art.    12,  »  Compiled LaWB  1 873,  p.  292,  §  3440. 

§§  2,  3. 

41 


§§  53,  54.]  POWER   OF    CORPORATIONS. 

thereon  into  stock  of  such  company,  at  any  time  within  six 
years  from  the  date  of  such  bond,  under  such  regulations  as  the 
company  may  adopt. 

53.  New  Hampshire.  —  There  are  no  special  provisions  confer- 
ring upon  railroad  companies  the  power  to  make  bonds  and  mort- 
gages other  than  that  they  have  the  general  powers  given  by  law 
to  other  corporations.  It  is  provided  that  all  corporations  may 
purchase,  hold,  and  convey  real  and  personal  estate  necessary  and 
proper  for  the  due  transaction  of  their  legitimate  business  to  the 
amount  authorized  by  their  charters.1  A  railroad  corporation 
may  purchase,  hold,  and  convey  real  estate,  lying  near  to  or  ad- 
joining its  road,  not  exceeding  in  value  five  per  cent,  of  its  cap- 
ital stock.2  Bonds  sold  at  a  discount  by  a  railroad  company  are 
not  affected  bv  the  usury  laws.3  No  sale  or  mortgage  of  a  rail- 
road  is  valid  unless  it  be  in  writing,  filed  in  the  office  of  the  secre- 
tary of  state,  and  authorized  by  the  legislature.4 

54.  New  Jersey.5  —  Any  company  incorporated  under  the  gen- 
eral railroad  act  has  power  to  borrow  such  sum  or  sums  of  money, 
from  time  to  time,  not  to  exceed  in  the  whole  its  paid-up  capital 
stock,  as  shall  be  necessary  to  build,  construct,  or  repair  their 
road,  and  furnish  all  necessary  engines  and  other  equipments  for 
the  uses  and  objects  of  said  company,  and  to  secure  the  repay- 
ment thereof  by  execution,  negotiation,  and  sale  of  any  bond  or 
bonds,  secured  by  mortgage  on  the  lands,  privileges,  franchises, 
and  appurtenances  of  and  belonging  to  the  said  company  ;  but  the 
company  is  not  allowed  to  plead  any  statute  or  statutes  against 
usury  in  any  court  of  law  or  equity  in  any  suit  instituted  to  en- 
force the  payment  of  any  bond  or  mortgage  executed  under  these 
provisions  ;  and  it  is  provided  further,  that  said  bonds  shall  con- 
stitute a  first  lien  on  the  railroad,  its  cars,  real  estate,  and  fran- 
chises, and  that  the  proceeds  of  said  bonds  shall  be  used  for  the 
purpose  of  aiding  in  the  construction  of  such  railroad. 

A  canal  company  has  like  power  to  borrow  and  to  execute 
bonds  secured  by  mortgage  on  lands,  privileges,  franchises,  and  ap- 
purtenances of  the  company.     The  bonds  constitute  a  lien  on  the 

1  Gen.  Stat.  1867,  ch.  133,  §  6.  *  Gen.  Stat.  ch.  145,  §  2. 

2  Ibid.  ch.  144,  §  3.  6  Laws   1873,   ch.  413,   §  20 ;    2  Rev. 

3  Ibid.  ch.  144,  §  4.  1877,  p.  931,  §  108. 

42 


STATUTES   AUTHORIZING    MORTGAGES.  [§§  55,  56. 

canal,  its  real  estate,  and  franchises,  and  the  proceeds  of  such 
bonds  must  be  used  for  the  purposes  of  building  or  repairing  the 
canal  and  its  works.1 

55.  New  Mexico  Territory.2  —  Any  railroad  corporation  has 
the  power  to  borrow,  on  the  credit  of  the  corporation,  and  under 
such  regulations  and  restrictions  as  its  directors  by  unanimous 
concurrence  may  impose,  such  sums  of  money  as  may  be  necessary 
for  constructing  and  equipping  its  railroad  and  telegraph  lines, 
and  to  issue  and  dispose  of  its  bonds  or  promissory  notes  therefor, 
in  denominations  of  not  less  than  five  hundred  dollars,  and  at  a 
rate  of  interest  not  exceeding  ten  per  cent,  per  annum  ;  and  also 
to  issue  its  bonds  or  promissory  notes  of  the  same  denomination 
and  rate  of  interest,  in  pa}7 men t  of  any  debts  or  contracts  for  con- 
structing, equipping,  and  completing  its  railroad  and  telegraph 
lines,  and  all  else  relating  thereto.  The  amount  of  bonds  or 
promissory  notes  issued  for  such  purposes  shall  not  exceed  in  all 
the  amount  of  its  capital  stock  ;  and  to  secure  the  payment  of 
such  bonds  and  notes,  it  may  mortgage  its  corporate  property  and 
franchises. 

56.  New  York.3  —  A  railroad  corporation  may  from  time  to 
time  borrow  such  sums  of  money  as  may  be  necessary  for  com- 
pleting and  finishing  or  operating  its  railroad,  and  may  issue  and 
dispose  of  its  bonds  for  any  amount  so  borrowed,  and  mortgage 
its  corporate  property  and  franchises  to  secure  the  payment  of 
any  debt  contracted  by  the  company  for  the  purposes  aforesaid  ; 
and  the  directors  of  the  company  may  confer  on  any  holder  of  any 
bond  issued,  for  money  borrowed  as  aforesaid,  the  right  to  convert 
the  principal  due  or  owing  thereon  into  stock  of  said  company, 
at  any  time  not  exceeding  ten  years  from  the  date  of  the  bond, 
under  such  regulations  as  the  directors  may  see  fit  to  adopt. 

A  corporation  for  manufacturing,  mining,  mechanical,  or  chem- 
ical purposes,  is  empowered  to  secure  the  payment  of  any  debt 
contracted  in  the  business  for  which  it  was  incorporated,  by  mort- 
gaging all  or  any  part  of  its  goods  and  chattels,  and  also  its  fran- 
chises, privileges,  and    rights,   provided   the  written   assent  of    a 

1   Laws  is?/,  eh.  8.r),  §  14;  2  Rev.  1877,         8  Rev.  Stat.  1875,  p.  533,  §  39,  pi.  10; 
p.  940,  g  11-'.  Same  in  General  R.  R.   Act  1850;  Laws 

*  Acts  1878,  p.  35,  §  14.  1850,  ch.  140,  §  28,  pi.  10. 

43 


§§  57,  58.]  POWER    OF   CORPORATIONS. 

majority  of  the  stockholders,  owning  at  least  two  thirds  of  the 
capital  stock  of  such  corporation,  shall  first  be  filed  in  the  office 
of  the  clerk  of  the  county  where  it  has  its  principal  place  of  busi- 
ness, and  also  in  the  office  of  the  clerk  of  the  county  where  such 
goods  and  chattels  are  situated.1 

Any  railroad  company  is  authorized  to  borrow  money  on  the 
security  of  its  railroad,  appurtenances,  and  franchises,  subject, 
however,  to  all  previous  incumbrances  and  debts  in  favor  of  the 
state  and  of  individuals,  to  such  an  amount  as  may  be  sufficient 
for  the  purpose  of  putting  so  much  of  its  railroad  as  such  di- 
rectors shall  deem  expedient  in  a  proper  condition  to  receive  a 
second  track  ;  of  procuring  iron  for  such  track,  and  of  laying  the 
same  with  an  iron  rail  weighing  not  less  than  fifty-six  pounds 
to  the  lineal  yard  ;  but  such  money  shall  not  be  used  for,  or  ap- 
plied to,  any  other  purpose,  nor  shall  the  money  borrowed  by 
virtue  of  this  provision  exceed  in  the  aggregate  the  sum  of  ten 
thousand  dollars  for  each  mile  of  the  railroad  of  such  company.2 

57.  North  Carolina.3  —  A  railroad  corporation  has  power  from 
time  to  time  to  borrow  such  sums  of  money  as  may  be  necessary 
for  completing  and  finishing  or  operating  its  railroad,  and  to  issue 
and  dispose  of  its  bonds  for  any  amount  so  borrowed,  and  to 
mortgage  its  corporate  property  and  franchises  to  secure  the  pay- 
ment of  any  debt  contracted  by  the  company  for  the  purposes 
aforesaid  ;  and  the  directors  of  the  company  may  confer  on  any 
holder  of  any  bond  issued  for  money  borrowed  as  aforesaid  the 
right  to  convert  the  principal  due  or  owing  thereon  into  stock  of 
said  company  at  any  time  not  exceeding  ten  years  from  the  date 
of  the  bond,  under  such  regulations  as  the  directors  may  see  fit 
to  adopt. 

58.  Ohio.4  —  A  railroad  company  has  power  to  borrow  money 
on  the  credit  of  the  corporation,  not  exceeding  its  authorized  cap- 
ital stock,  at  a  rate  of  interest  not  exceeding  seven  per  cent,  per 
annum,  and  to  execute  bonds  or  promissory  notes  therefor,  in  sums 
of  not  less  than  one  hundred  dollars ;  and,  to  secure  the  payment 

1  Laws  1878,  ch.  163.  4   1  R.    S.    I860,  ch.    29,   §  31.     As  to 

2  R.  S.  1875,  p.  550,  §  90.  For  orig-  bonds  and  mortgages  of  narrrow  gauge 
inal  statute  see  Laws  1847,  ch.  405.  railroad    companies,  see   Laws    1877,   p. 

3  Rjvisal    1873,   p.    740,  ch.   99,   §   29,  146. 
pi.  10. 

44 


STATUTES    AUTHORIZING   MORTGAGES.  [§§  59,  60. 

thereof,  such  company  may  pledge  its  property  and  income.  The 
bonds  issued  may  be  either  registered  or  coupon  bonds,  or  both  ; 
and  either  kind  may  be  exchanged  by  the  company  for  the  other.1 

59.  Oregon.  —  No  general   provisions  in   relation  to   railroad 
mortgages  are  found. 

60.  Pennsylvania.2  —  The  president  and  directors  of  a  railroad 
company  may  borrow  money,  not  exceeding  the  amount  of  capital 
stock  subscribed,  and  issue  the  bonds  of  the  company  therefor, 
in  such  amounts  as  shall  not  exceed  double  the  amount  actually 
paid  up  of  the  capital  stock  subscribed,  the  proceeds  whereof 
shall  be  actually  expended  in  the  construction  and  equipment  of 
the  road  ;  these  bonds  may  be  made  payable  at  such  time,  not 
exceeding  fifty  years  after  the  date  thereof,  and  at  such  place,  and 
at  such  rate  of  interest,  not  exceeding  seven  per  centum,  as  the 
directors  may  deem  best ;  and  they  may  secure  the  payment  of  such 
bonds  and  interest  by  a  mortgage  on  the  road  and  franchises.3 

A  mortgage  to  secure  the  bonds  and  obligations  of  a  railroad 
company  may  be  made  upon  the  whole  or  any  part  of  its  prop- 
erty, rights,  and  franchises,  subject  to  any  prior  incumbrances 
thereon.  Special  power  is  given  to  mortgage  any  branch,  lateral, 
or  diverging  line.4 

A  narrow  gauge  railroad  company,5  whose  line  does  not  exceed 
fifty  miles  in  length,  and  having  a  capital  stock  not  exceeding 
$500,000,  is  authorized  to  borrow  money  not  exceeding  the  cap- 
ital stock  in  amount,  and  to  issue  bonds  not  exceeding  double  the 
amount  of  capital  stock  actually  paid  up,  payable  at  a  time  not 
exceeding  fifty  years  from  date  thereof,  with  interest  not  exceed- 
ing seven  per  cent,  per  annum,  the  proceeds  to  be  expended  in 
the  construction  and  equipment  of  the  road,  and  to  secure  the 
payment  of  such  bonds  and  interest  by  a  mortgage  on  the  road 
and  franchises,  subject  to  any  prior  incumbrance  thereon. 

The  Constitution  of  the  state  provides  that  no  corporation  shall 
issue  stocks  or  bonds  except  for  money,  labor  done,  or  money  or 
property  actually  received  ;  and  that  all  fictitious  increase  of  stock 
or  indebtedness  shall  be  void.     The  stock  and  indebtedness  of  cor- 

1    Laws  1*70,  p.  123.  B  Laws  1*7."{,  p.  45,  §  21. 

•;  Brightley'fl  Purdon'a   Dig.  pp.  l^,  L3,        *  Dig.  supra,  p.  1232,  §  102. 
§  8;  Act  of  April  4,  1808,  §  8.  °  Laws  L876,  p.  135. 

45 


§§  61,  62.]  POWER    OF    CORPORATIONS. 

porations  shall  not  be  increased  except  in  pursuance  of  general  law, 
nor  without  the  consent  of  the  persons  holding  the  larger  amount 
in  value  of  the  stock  be  first  obtained,  at  a  meeting  to  be  held 
after  sixty  days'  notice  given  in  pursuance  of  law.1 

Any  railroad  company2  of  this  state  may  from  time  to  time  pur- 
chase and  hold  or  guarantee  the  bonds  of  any  other  railroad  com- 
pany chartered  under  the  laws  of  this  state,  or  existing  under  the 
laws  of  any  other  state.  Any  railroad  or  canal  company  may  aid 
corporations  authorized  by  law  to  develop  the  coal,  iron,  lumber, 
and  other  material  interests  of  this  commonwealth,  not  possessing 
mining  or  manufacturing  privileges  in  the  county  of  Schuylkill, 
by  the  purchase  of  their  bonds  or  by  guaranteeing  them. 

Railroad  companies  may  indorse  or  guarantee  the  bonds  or  other 
obligations  of  any  other  railroad  company. 

61.  South  Carolina.  —  There  is  no  general  act  for  the  incorpo- 
ration of  railroad  companies.  Their  powers  are  conferred  and  de- 
fined by  special  charters. 

62.  Tennessee.3  —  Any  railroad  company  may  issue  bonds,  for 
the  purposes  of  its  incorporation,  to  an  amount  not  exceeding 
double  the  cost  of  that  part  of  the  road  already  completed,  in 
such  form,  and  for  such  sums  not  less  than  one  hundred  dollars, 
bearing  interest  at  the  rate  of  six  per  cent.,  and  payable  at  such 
times  and  places  as  it  may  designate ;  and  may  pledge  or  mort- 
gage the  property,  effects,  and  franchises  of  the  company  for  the 
payment  of  the  interest  and  final  redemption  of  such  bonds. 

Any  railroad  company  in  this  state  owing  outstanding  floating 
debts,  and  being  desirous  of  making  provision  for  the  payment  of 
the  same,  is  authorized  to  issue  income  bonds  for  an  amount 
sufficient  to  pay  off  the  indebtedness,  bearing  interest  at  a  rate 
not  exceeding  ten  per  cent,  per  annum,  payable  either  annually 
or  semi-annually ;  and  to  secure  such  bonds  by  mortgage  or 
deed  of  trust  of  either  the  whole  or  any  part  of  the  rents  and 
profits,  and  other  property  and  franchises  of  the  company  ;  such 
bonds,  together  with   any  consolidated   bonds  the  company  may 

1  Const.  1873,  art.  xvi.  §  7.  piled   Stat.  1871,  §    1443.      For   act   au- 

2  Brightle/s  Purdon's  Dig.  p.  1233,  §§  tliorizing,  in    certain    cases,   consolidated 
105>  106.  mortgage  bonds,  see  Acts  1873,  eh.  8,  §  1. 

3  Code     1858,    p.   315,   §    1443;     Com- 

46 


STATUTES   AUTHORIZING    MORTGAGES.  [§§  63,  64. 

have  issued,  not  to  exceed  twenty  thousand  dollars  per  mile  of 
road,  and  not  to  affect  existing  liens.1 

63.  Texas.2  —  Any  railroad  corporation  may  from  time  to  time 
borrow  such  sums  of  money  as  may  be  necessary  for  completing, 
finishing,  improving,  or  operating  its  railway,  and  may  issue  and 
dispose  of  its  bonds  for  any  amount  so  borrowed,  and  mortgage 
its  corporate  property  and  franchise  to  secure  the  payment  of  any 
debt  contracted  by  such  corporation  for  the  purposes  aforesaid  ; 
but  the  concurrence  of  the  holders  of  two  thirds  in  amount  of  the 
stock  of  such  corporation,  to  be  expressed  in  the  manner  and  under 
all  the  conditions  provided  for  by  another  section  of  the  statute, 
shall  be  necessary  to  the  validity  of  any  such  mortgage  ;  and  the 
order  or  resolution  for  such  mortgage  must  be  recorded  in  a  man- 
ner particularly  provided  ;  and  the  directors  are  empowered,  in 
pursuance  of  any  such  order  or  resolution,  to  confer  on  any  holder 
of  any  bond,  for  money  so  borrowed  as  aforesaid,  the  right  to  con- 
vert the  principal  due  or  owing  thereon  into  the  stock  of  such  cor- 
poration at  any  time  not  exceeding  ten  years  after  the  date  of 
such  bond,  under  such  regulations  as  may  be  provided  in  the  by- 
laws of  such  corporation. 

The  Constitution  of  the  state  provides  that  no  corporation  shall 
issue  stock  or  bonds  except  for  money  paid,  labor  done,  or  prop- 
erty actually  received,  and  that  all  fictitious  increase  of  stock  or 
indebtedness  shall  be  void.3 


64.  Vermont.4 — Every  railroad  corporation  within  this  state, 
if  it  shall  vote  so  to  do  at  a  meeting  of  the  stockholders  called  for 
such  purpose,  has  power  to  issue  its  notes  or  bonds  for  the  purpose 
of  building  or  furnishing  its  roads,  or  paying  any  debts  contracted 
for  building  or  furnishing  the  same,  bearing  such  a  rate  of  in- 
terest, not  exceeding  seven  per  cent.,  and  secured  in  such  a  man- 
ner as  it  may  deem  expedient.  All  bonds  or  notes  which  have 
been  or  which  hereafter  may  be  issued  by  any  such  corporation, 
for  the  purposes  aforesaid,  shall  be  binding  and  collectible  in  law, 
notwithstanding  such  notes  or  bonds  were  negotiated  and  sold  by 
such  corporation  at  less  than  par. 


1  Act  1873,  cl).  8,  §§  3,  4. 

2  Laws  1876,  ch.  97,  §  23. 

3  Const.  187G,  art.  xii.  §  C. 


4  Gen.   Stat.   1870,  ch.  26, 
09. 

47 


97,  98, 


§§  65,  G6.~\  POWER    OF   CORPORATIONS. 

All  notes  or  bonds  which  may  be  issued  under  and  by  virtue  of 
these  provisions  must  be  issued  for  a  sum  not  less  than  one  hun- 
dred dollars  each,  and  must  be  made  payable  in  not  less  than  three 
years,  nor  more  than  twenty  years,  from  the  time  of  issuing  the 
same. 

65.  Virginia.1  —  No  railroad  company,  which  by  its  charter  has 
no  express  power  so  to  do,  shall  borrow  money  until  there  shall  be 
paid  up  and  expended  or  appropriated  the  whole  amount  of  capi- 
tal stock  subscribed,  with  the  exception  only  of  losses  by  delin- 
quent or  insolvent  stockholders.  But  the  president  and  directors 
may  borrow  an  amount  not  exceeding  that  part  of  the  capital 
stock  which  is  unsubscribed,  and  may  issue  certificates  for  the 
money  so  borrowed,  and  may  make  such  certificates  convertible, 
within  a  prescribed  time,  into  stock  of  the  company,  at  the  pleas- 
ure of  the  holder. 

66.  West  Virginia.2 — Any  railroad  company  is  empowered, 
from  time  to  time,  to  borrow  such  sums  of  money  as  may  be  nec- 
essary for  completing,  finishing,  improving,  or  operating  any  such 
railroad,  and  to  issue  bonds,  bills  of  credit  or  indebtedness,  and 
preferred  stock,  and  dispose  of  the  same,  for  any  amount  so  bor- 
rowed, and  to  mortgage  its  corporate  property  and  franchises  to 
secure  the  payment  of  any  debt  contracted  by  such  corporation 
for  such  purposes  ;  but  the  concurrence  of  the  holders  of  two 
thirds  in  amount  of  the  stock  of  such  corporation,  to  be  expressed 
in  the  manner  and  under  all  the  conditions  provided  for  by  stat- 
ute, is  made  necessary  to  the  validity  of  any  such  mortgage  ;  and 
the  order  or  resolution  for  such  mortgage  must  be  recorded  as  pro- 
vided for  ;  and  the  directors  of  such  corporation  are  empowered, 
in  pursuance  of  any  such  order  or  resolution,  to  confer  on  any 
holder  of  any  bond,  for  money  so  borrowed  as  aforesaid,  the  right 
to  convert  the  principal  due  or  owing  thereon  into  stock  of  such 
corporation,  at  any  time  not  exceeding  ten  years  after  the  date  of 
such  bond,  under  such  regulations  as  may  be  provided  in  the  by- 
laws of  such  corporation. 

No  corporation  shall  issue  any  stock  or  bonds,  except  for  money, 

1  Code  1873,  c.  61,  §  43;  Act  1836-37,  porations  in  which  the  state  is  a  stock- 
p.  Ill,  §  29.     As  to  restrictions  on  cor-     holder,  see  Code,  supra,  c.  57,  §§  41-43. 

2  Acts  1872-73,  ch.  88,  §§  20,  22. 
48 


STATUTES   AUTHORIZING   MORTGAGES.  [§  67. 

labor,  property,  and  materials  actually  purchased,  received,  and 
applied  to  the  purposes  for  which  such  corporation  was  organized. 
All  stock  dividends,  and  other  fictitious  increase  of  the  capital 
stock  or  indebtedness  of  any  such  corporation,  shall  be  void. 

A  railroad  or  other  corporation  authorized  to  issue  its  bonds 
may' issue  either  registered  or  coupon  bonds,  and  may  exchange 
the  one  for  the  other ;  and  the  bonds  given  in  exchange  are  enti- 
tled to  the  security  or  lien  arising  from  any  mortgage  given  for 
the  security  of  the  original  bonds.1 

67.  "Wisconsin.2  —  A  railroad  corporation  has  power  to  borrow 
such  sum  or  sums  of  money  at  such  rates  of  interest  and  upon 
such  terms  as  said  company  or  its  board  of  directors  shall  author- 
ize and  agree  upon,  and  may  deem  necessary  or  expedient,  and  to 
execute  one  or  more  trust  deeds  or  mortgages,  or  both,  as  occasion 
may  require,  on  any  railroad  or  railroads  constructed  or  in  process 
of  construction  by  said  company,  for  the  amount  or  amounts  bor- 
rowed or  owing  by  such  company,  upon  such  terms  and  in  such 
manner  as  such  company  or  its  board  of  directors  shall  deem  ex- 
pedient ;  and  such  company  may  make  such  provisions  in  such 
deed  or  mortgage  for  pledging  or  transferring  their  railroad  track, 
rio-ht  of  way,  depot  grounds,  rights,  privileges,  franchises,  immu- 
nities, machine  houses,  rolling  stock,  furniture,  tools,  implements, 
appendages  and  appurtenances  used  in  connection  with  such  rail- 
road or  railroads,  in  any  manner  whatever,  then  belonging  to  said 
company,  or  which  shall  thereafter  belong  to  it,  as  security  for 
any  bonds,  debts,  or  sums  of  money  that  may  be  secured  by  such 
trust  deed  or  mortgage,  as  they  shall  think  proper. 

i  Acts  1877,  ch.  3.  "  Laws  1877,  ch.  144,  §  1. 

4  49 


CHAPTER   II. 


FORM   AND    CONSTRUCTION   OF   CORPORATE    MORTGAGES. 


I.  Common  kinds  of  corporate  mortgages, 
68-72. 

II.  Equitable  mortgages,  73-77. 

III.  Statutory  liens   and  mortgages,  78- 
83. 


IV.  Who  may  execute  a  corporate  mort- 
gage, 84-88. 

V.  Construction  of  various  provisions  of 
corporate  mortgages,  89-98. 


I.    Common  Kinds  of  Corporate  Mortgages. 

68.  Mortgages  of  railroad  companies  and  other  corpora- 
tions are  almost  invariably  in  the  form  of  trust  deeds,  with  a 
power  of  sale.  The  intervention  of  trustees  to  take  and  hold  the 
mortgage  title  for  the  benefit  of  the  creditors  secured,  and  to  rep- 
resent them  in  all  important  matters  connected  with  the  security, 
and  especially  in  the  enforcement  of  it,  is  almost,  if  not  altogether, 
a  necessity  of  corporate  mortgages  of  the  magnitude  common  with 
these  securities.  The  holders  of  the  bonds  secured  by  such  mort- 
gages are  often  very  numerous,  and  scattered  all  over  the  world. 
The  bonds  are  made  negotiable,  so  that  they  may  be  conveniently 
disposed  of  in  the  market,  and  consequently  the  bondholders  do 
not  remain  the  same  from  year  to  year,  but  are  constantly  shift- 
ing.1 

Through  the  intervention  of  trustees  the  mortgage  is  in  effect  a 
contract  between  the  corporation  making  it  and  all  persons  who 
may  become  holders  of  the  bonds  secured  by  it,  and  they  are  en- 
titled to  the  same  benefit  they  would  have  if  made  parties  to  the 
deed.2 

It  is  usual  in  corporate  mortgages  to  convey  the  property  in 
trust  to  two  or  more  trustees  jointly,  so  that  upon  the  death  of  a 
trustee  his  interest  does  not  descend  to  his  heirs,  but  vests  in  the 
survivor.  This  right  of  survivorship  is  not  affected  by  statutes 
abolishing  joint-tenancies  and  converting  them  into  tenancies  in 

1  See  2  Jones  on  Mortgages,  §§  1764-         "-  Butler  v.  Rahm,  46  Md.  541. 
1771. 

50 


COMMON   KINDS    OF    CORPORATE    MORTGAGES.       [§§  69,  70. 

common,  unless  the  language  of  the  statutes  expressly  embrace 
trust  estates  ;  for  the  evil  to  be  remedied  by  such  statutes  is  the 
improper  accretion  to  the  survivor  of  that  which  belonged  in  part 
to  the  deceased  ;  and  inasmuch  as  trust  property,  whether  held  by 
one  or  more  persons,  would  only  be  held  for  the  benefit  of  the 
cestuis  que  trust,  whose  estate  would  be  in  no  manner  affected  by 
the  death  of  one  of  the  trustees,  the  reason  of  the  law  ceases,  and 
the  law  itself  does  not  apply.1 

69.  Although  railroad  mortgages  generally  contain  a  power 
of  sale  which  the  trustees  may  exercise  upon  default,  it  is  not 
often  that  this  power  is  resorted  to  for  the  enforcement  of  these 
securities.  The  property  of  such  corporations  is  generally  widely 
scattered,  and  in  the  hands  of  a  great  number  of  persons ;  and 
generally,  too,  there  are  conflicting  interests  arising  from  mort- 
gages and  other  liens  in  favor  of  other  persons.  These  considera- 
tions are  generally  sufficient  to  render  it  desirable  and  proper  for 
mortgagees  to  resort  to  proceedings  in  equity  to  foreclose  such 
mortgages  rather  than  to  exercise  the  summary  rights  conferred 
by  powers  of  sale. 

70.  Indefiniteness  in  a  power  of  sale  will  render  it  void. 
Thus  the  York  and  Cumberland  Railroad  Company 2  executed  a 
mortgage,  in  the  condition  of  which  it  was  provided  that  upon 
failure  of  payment  for  the  term  of  sixty  days  the  holder  of  the 
bonds  secured,  or  of  any  one  or  more  thereof,  was  authorized  to 
take  possession  for  the  common  benefit  and  use  of  the  holders  of 
all  the  bonds,  "  and  such  holders  shall  share  and  share  alike  in 
the  disposition  and  sale  of  the  same  for  that  purpose  by  public 
vendue,  on  reasonable  notice  given  thereof  to  the  grantors  afore- 
said, first  deducting  from  such  proceeds  all  costs  and  expenses  in- 
cident to  such  possession  and  sale."  A  power  of  sale  is  not  given  in 
terms  by  the  mortgage,  nor  is  it  necessarily  implied  from  it.  More- 
over, if  a  power  were  assumed  to  exist,  it  would  be  void  from  the 
indefiniteness  of  the  persons  upon  whom  it  is  conferred,  and  from 
the  impossibility  of  its  execution.  It  is  given  to  no  one  specific- 
ally. It  one  may  sell  so  may  another.  If  one  wished  to  sell,  and 
the  others  objected  to  a  sale,  the  exercise  of  the  power  could  not 

1  McAllister  v.  Plant,  54  Miso.  106.  -  Mason  v.  York  &  Cumberland  U.  R. 

Co.  52  Mc.  82. 

51 


§§  71,  72.]       FORM    AND    CONSTRUCTION    OF    CORPORATE    MORTGAGES. 

be  prevented.  The  bondholders,  moreover,  might  severally  pro- 
ceed to  sell ;  but  if  the  sales  should  be  made  at  the  same  time,  at 
different  places,  and  upon  different  terms  and  conditions,  who,  of 
the  bondholders  thus  selling,  will  confer  a  valid  title  upon  the 
purchaser?  No  estate  is  conferred  upon  the  bondholders  as  such. 
This  is  conferred  upon  the  mortgagee  ;  but  the  power  of  sale,  if 
conferred  upon  any  one,  is  not  conferred  upon  him.  The  mort- 
gagee having  attempted  to  exercise  the  power  of  sale,  and  having 
transferred  to  the  purchaser  all  his  right,  title,  and  interest  in  the 
mortgage,  it  was  held  that  the  purchaser  took  an  assignment  of 
the  mortgage  and  held  the  mortgage  title  in  the  same  manner  that 
the  mortgagee  had  held  it. 

71.  When  bonds  are  secured  by  a  conveyance  strictly  in 
the  form  of  a  mortgage  rather  than  a  trust  deed,  the  mortgagee, 
after  a  transfer  of  any  of  the  bonds,  holds  the  legal  title  as  mort- 
gagee for  his  remaining  interest  and  in  trust  for  the  holders  of  the 
bonds  transferred.1 

72.  Debentures,  which  are  the  commonest  form  of  security 
issued  by  English  corporations,  are  denned  to  be  instruments 
under  seal,  creating  a  charge,  according  to  their  wording,  upon  the 
property  of  the  corporation,  and  to  that  extent  conferring  a  pri- 
ority over  subsequent  creditors,  and  over  existing  creditors  not 
possessed  of  such  a  charge.2  This  is  the  true  and  proper  use  of 
the  term  ;  although  it  is  frequently  applied  on  the  one  hand  to  in- 
struments which  do  not  confer  a  charge,  and  which  are  nothing 
more  nor  less  than  ordinary  unsecured  bonds,  and  on  the  other, 
to  instruments  which  are  more  than  a  mere  charge,  being  in  ef- 
fect mortgages,  and  are  properly  termed  mortgage  debentures. 
Debentures,  strictly  so  called,  differ  from  mortgages  in  not  con- 
ferring upon  the  grantees  the  legal  title,  or  any  of  the  ordinary 
rights  of  ownership  of  the  property  upon  which  a  charge  is  cre- 
ated.3 They  are  at  most  only  equitable  mortgages.  The  charge 
they  create  upon  the  property  of  the  company  confers  only  equi- 
table rights,  either  as  against  other  creditors,  or  as  against  the  cor- 
poration ;  and  in   fact  the  true   test  whether  an  instrument  is  a 

1  1  Jones  on  Mortgages,  §  817  ;  Mason  2  Brice  on  Ultra  Vires,  2d  ed.  279. 

v.  York  &  Cumberland  11.  R.  Co.  52  Me.  3  To  assist  in  understanding  the  Eng- 

82 ;  York  &  Cumberland  R.  R.  Co.  in  re,  lisli  decisions,  the  forms  of  these  instru- 

50  Me.  552.  ments  are  given  at  the  end  of  this  section. 

52 


COMMON    KINDS    OF    CORPORATE    MORTGAGES. 


[§  72. 


debenture  or  mortgage  is  found  in  the  inquiry  whether  the  holder 
has  any  legal  right  to  interfere  with  the  company's  use  or  control 
of  the  property  in  whatever  way  it  pleases.  If  the  instrument 
confers  a  charge  which  can  be  protected  and  enforced  only  in 
equity,  it  is  strictly  a  debenture.1  Of  course  the  effect  and  extent 
of  the  charge  depends  entirely  upon  the  language  used.2 

Such  debentures  are  in  effect  statutory  mortgages.  It  will  be 
noticed  that  the  English  railway  mortgages  differ  widely  from 
those  in  use  in  America,  in  that  each  creditor  is  there  secured  by 
a  separate  mortgage,  while  here  one  mortgage  is  made  to  secure 
all  the  mortgage  creditors. 

Under  the  Companies  Clauses  Act,3  holders  of  mortgage  de- 
bentures of  a  corporation  have  no  priority  as  respects  each  other, 
but  are  all  upon  an  equality.  One  mortgage  debenture  holder  is 
not  entitled  to  acquire  an  advantage  over  the  other  mortgage  de- 
benture holders.  After  a  bill  in  equity  against  the  company  has 
been  filed  by  all  the  debenture  holders,  and  a  receiver  appointed, 
a  single  mortgagee,  who  has  recovered  judgment  on  his  debent- 
ure, is  not  entitled  to  sue  out  an  execution  otherwise  than  as  trus- 
tee for  himself  and  the  other  mortgage  debenture  holders.4 


1  See  Holroyd  v.  Marshall,  10  H.  L.  C. 
191. 

2  General  South  American  Co.  in  re, 
L.  1!.  2  Ch.  D.  337. 

5  8  Vict.  16,  §  42. 

4  Bowen  v.  Brecon  Ry.  Co.  L.  R.  3  Eq. 
541. 

The  form  of  a  mortgage  deed  in  England 
is  prescribed  by  statute  to  be  as  follows,  or  to 
like  effect  (Companies  Clauses  Act  1845, 
8  Vict.  ch.  10,  §  14.):  — 

"  Tin;  Com;  any." 

Mortgage,  number  .     £ 

By  virtue  of  [here  name  the  special  act], 
v.  '•,  "  The 

Company,"    in   consideration    of    the 
sum  of  pounds   paid    to  us  by  A. 

13.,  of  ,   do  assign    unto  the 

said  A.  B.,  bis  executors,  administrators, 
and  assigns,  tin-  said  undertaking,  and  all 
the  tolls  and  sums  of  money  arising  by 
virtue  of  tin-  said  act,  and  all   the  estate, 

ri^'lit,  title,  and  interest  of  the  company  in 
tie-  Bame,  to  hold  unto  the  said  A.  I!.,  his 
executors,    administrators,    and    a  signs, 


until  the  said  sum  of  pounds,  to- 

gether with  interest  for  the  same,  at  the 
rate  of  for   every  one    hundred 

pounds  by  the  year,  be  satisfied  ["  the 
principal  sum  to  be  repaid  at  the  end  of 
years  from  the  date  hereof," 
in  case  any  period  be  agreed  upon  for  that 
purpose  "at  ,"  or  anyplace 

of  payment  other  than  the  principal  office 
of  the  company].  Given  under  our  com- 
mon seal,  this  day  of 
,  in  the  year  of  our 
Lord 

Tht   same  act  prescribes  the  following  form 
qf  bond :  — 

"The  Company." 

Bond,  number  .     ■£ 

By  virtue  of  [in  re,  name  the  special  act], 
we,  "  The 

Company,"  in   consideration  of 
the  BUm  of  pounds  to  us  in  hand 

paid  by  A.  B.,  of  do  bind  our- 

Bclves  and  our  SUCCeSSOrS  unto  the   said   A. 

I'.,  his  executors,  administrators,  and  as- 
signs, in  the  penal  sum  of  pounds. 

53 


§  73.]       FORM    AND    CONSTRUCTION    OF   CORPORATE   MORTGAGES. 

II.  Equitable  Mortgages. 

73.  An  instrument  which  was  intended  to  be  the  mort- 
gage deed  of  a  corporation,  but  which,  not  being  executed  by  the 
corporation,  or  in  its  name,  cannot  take  effect  as  its  deed,  may 
nevertheless  be  regarded  as  an  equitable  mortgage,  and  entitle 
the  holders  of  it  in  equity  to  the  full  benefit  of  the  security  in- 
tended to  be  given.  The  Rutland  and  Washington  Railroad 
Company  authorized  its  president  to  issue  bonds  secured  by  a 
mortgage  of  its  road  and  franchise.  The  president  executed  an 
instrument  which  recited  his  authority,  proceeded  in  his  name  as 
president  to  convey  the  property  in  mortgage,  and  to  make  the 
covenants,  and  the  deed  was  signed  in  his  own  name.  The  com- 
pany issued  bonds  under  this  mortgage,  and  did  various  acts  in 
ratification  of  the  security,  and  afterwards  issued  two  other  sets  of 
bonds,  and  secured  them  by  second  and  third  mortgages  executed 
in  due  form.  The  first  bonds  not  being  paid  when  due,  the  trus- 
tees filed  a  bill  to  foreclose  the  mortgage,  whereupon  the  subse- 
quent mortgagees  claimed  that  the  first  mortgage,  by  reason  of  its 
defective  execution,  did  not  constitute  a  lien  upon  the  property. 
The  court,  however,  sustained  it  as  an  equitable  mortgage.  As 
against  the  corporation  itself,  the  bonds  and  mortgage  were  binding 


The  condition  of  the  ahove  obligation  is 
such,  that  if  the  said  company  shall  pay 
to  the  said  A.  B.,  his  executors,  adminis- 
trators, or  assigns  ["  at  ,"  in 
case  any  other  jilace  of  payment  than  the 
principal  office  of  the  company  be  intended], 
on  the  day  of  ,  which 
will  be  in  the  year  one  thousand  eight 
hundred  and  ,  the  principal 
sum  of  pounds,  together  with 
interest  for  the  same,  at  the  rate  of 

pounds  per  centum  per  annum,  pay- 
able half-yearly,  on  the  day  of 
,  and  day  of 
,  then   the  above  written 
obligation  is  to  become  void,  otherwise  to 
remain    in   full   force.     Given  under  our 
common    seal,  this  day  of 
,  one  thousand  eight  hun- 
dred and 

Form  of  transfer  of  mortgage  or  bond :  — 
I,  A.  B.,  of  ,  in  con- 

54 


sideration  of  the  sum  of  » 

paid  to  me  by  G.  H.,  of  , 

do  hereby  transfer  to  the  said  G.  H  ,  his 
executors,  administrators,  and  assigns,  a 
certain   bond   [or  "mortgage"],  number 
,  made  by  "  The 
Company  "  to  , 

bearing  date  the  day  of 

,  for  securing  the  sum  of 
and  interest 

[or,  if  such  transfer  be  by  indorsement,  "  the 
within  security"],  and  all  my  right,  es- 
tate, and  interest  in  and  to  the  money 
thereby  secured  [and  if  the  transfer  be  of 
a  mortgage,  "and  in  and  to  the  tolls, 
money,  and  property  thereby  secured"]. 
In  witness  whereof,  I  have  hereunto  set 
my  hand  and  seal,  this 
day  of  ,  one  thousand 

eight  hundred  and 

i  Miller  v.  Rutland  &  Washington   R- 
R.  Co.  36  Vt.  452. 


EQUITABLE   MORTGAGES.  [§  73. 

contracts.  Objection  was  made  that  the  mortgage  was  not  a 
memorandum  in  writing  sufficient  to  satisfy  the  statute  of  frauds. 
The  vote  of  the  directors  in  connection  with  the  deed  was  regarded 
as  sufficient  in  this  respect,  and  as  furnishing  an  equitable  right  in 
the  security  contracted  to  be  given.  It  was  also  objected  that  a 
court  of  equity  would  not  give  relief  for  mistake  in  matter  of 
law  ;  but  there  was  no  occasion  to  discuss  this  question,  because 
there  was  no  mistake  on  the  part  of  the  corporation  as  to  matter 
of  law  ;  for  the  intention  was  that  the  president  should  make  a 
valid  technical  mortgage,  and  it  was  altogether  a  mistake  on  his 
part  that  it  was  not  technically  the  deed  of  the  corporation.  He 
by  mistake  made  one  that  technically  could  operate  only  as  his 
own  deed. 

But  after  determining  that  the  instrument  constituted  an  equi- 
table mortgage  between  the  parties,  it  remained  to  establish  it  as 
such  against  the  subsequent  mortgagees.  The  court  was  con- 
vinced by  the  evidence,  that  all  the  trustees  under  the  second  and 
third  mortgages,  prior  to  and  at  the  time  such  mortgages  were 
executed,  had  notice  and  knowledge,  in  point  of  fact  that  the 
first  bonds  had  been  issued,  and  that  they  were  secured  by  mort- 
gage. They  stood  chargeable,  therefore,  with  the  legitimate  ef- 
fect of  the  right,  whether  legal  or  equitable,  which  existed  in 
virtue  of  the  issuing  of  the  bonds  with  such  security  by  way  of 
mortgage  as  appertained  to  them.  The  trustees  under  these 
mortgages  were  the  agents  of  the  holders  of  the  bonds,  and  no- 
tice to  the  agent  was  notice  to  the  bondholders,  who  therefore 
took  their  bonds  subject  to  all  the  legal  consequences  of  the  ex- 
istence of  the  equitable  first  mortgage.  Notice  to  the  trustees 
should  be  held  to  affect  the  title  in  their  hands,  with  reference  to 
all  rights  existing  in  respect  thereto  under  the  trust.  "  Though 
it  be  obvious  and  readily  conceded,"  said  Mr.  Justice  Barrett, 
"that  bondholders  acquire  their  rights,  in  reference  to  the  secu- 
rity provided  by  the  mortgage  in  trust,  by  the  purchase  of  the 
bonds,  and  with  such  purchase  the  trustees  have  no  connection, 
nor  any  agency  in  reference  to  the  transfer  thereof,  yet,  it  is  at 
the  same  time  true,  that,  in  reference  to  the  security  for  holding, 
enforcing,  and  administering  it  according  to  the  provisions  of  the 
trust,  the  trustees  are  the  agents  of  the  parties  interested  and  en- 
titled by  reason  of  being  bondholders.  We  are  unable  to  assent 
to  the  proposition,  that  the  trustees  are  only  agents  of  the  cestuis 


§§  74,  75.]      FORM   AND    CONSTRUCTION   OF   CORPORATE   MORTGAGES. 

que  trust  for  holding  the  legal  title.  They  are  agents  for  holding 
just  such  title  ;is  is  created  by  the  transaction,  and  for  adminis- 
tering it  according  to  the  terms  of  the  trust,  and  whatever  title 
the  cestuis  que  trust  have,  whether  legal  or  equitable,  is  through, 
and  in  virtue  of,  the  title  conveyed  to  and  held  by  the  trustees. 
Even  if  it  should  be  granted  that  the  trustees  were  agents  merely 
for  holding  the  legal  title,  still,  as  the  rights  of  the  cestuis  que  trust 
depend  upon  and  are  to  be  asserted  through  that  legal  title,  what- 
ever affects  such  legal  title  in  its  creation  in  the  trustees  must  af- 
fect the  rights  and  interests  that  are  dependent  upon  it.  If  the 
legal  title  is  charged  with  an  incumbrance  in  its  creation  in  the 
hands  of  the  trustees,  it  is  difficult  to  see  how  the  cestuis  que  trust 
can  have  an  equity  suspended  upon  that  legal  title  that  shall  over- 
ride such  incumbrance.  However  that  might  be  as  a  proposition 
applicable  to  a  dry  trust,  still,  as  to  a  trust  which,  in  addition  to 
the  holding  of  the  title,  is  administrative  of  the  property  for  the 
purposes  of  effectuating  the  security,  the  trustees  must  be  regarded 
as  the  agents  of  the  cestuis  que  trust  with  reference  to  their  rights 
and  interests,  both  in  the  title  held  and  in  the  administration  and 
fruits  of  the  trusts,  according  to  its  terms  and  legal  operation." 

74.  A  contract  to  give  a  mortgage  for  specified  sums  has  in 
equity  the  effect  of  a  mortgage  to  the  extent  indicated.  But 
such  a  contract  implies  that  no  other  or  different  mortgage  or  lien 
is  to  be  given  ;  and  a  stipulation  for  a  mortgage  "for  the  advance- 
ments made  or  money  expended  "  under  a  contract  cannot  be 
made  to  include  damages  for  a  breach  of  the  contract.1  If  the 
property  to  be  charged  consists  of  land,  it  is  of  course  ineffectual 
by  reason  of  the  statute  of  frauds,  unless  it  be  in  writing  ;  but 
an  agreement  by  word  of  mouth  to  charge  other  property  may  be 
enforced  in  equity  by  a  decree  for  specific  performance.2 

Statutory  liens,  as  affecting  personal  property,  have,  without 
possession,  the  same  operation  and  efficacy  that  existed  in  com- 
mon law  liens,  when  the  possession  was  delivered.3 

75.  Without   a  formal  mortgage  the  bonds  of  a   corpora- 

1  Waco  Tap  K.  B.  Co.  v.   Shirley,  45     Peto  v.  Brighton,  &c.  By.  Co.  1   H.  &  M. 
Tex.  355  ;   13  Am.  Bailw.  Bep.  233  ;  and     468. 

see  1  Jones  on  Mortgages,  §  163  3  Bean  v_  White,  94  U.  S.  382. 

2  Asliton  v.  Conigan,  L.  B.  13  Eq.  76; 

56 


EQUITABLE   MORTGAGES.  [§  76. 

tion  providing  that  they  shall  be  a  lien  upon  the  property  of 
the  company  prior  to  all  others,  are  in  substance  a  mortgage,  and 
may  be  enforced  in  equity  as  against  the  corporation  and  its  prop- 
erty. Of  course  as  against  subsequent  purchasers  and  incum- 
brancers without  notice  of  such  lien,  whose  deeds  are  first  recorded, 
such  bonds  would  have  no  priority.  Such  for  instance  were  the 
bonds  of  the  White  Water  Valley  Company,  a  corporation  organ- 
ized under  the  laws  of  the  State  of  Indiana  to  build  a  canal,  and 
whose  bonds,  pledging  "  the  effects,  real  and  personal,"  of  the 
company,  contained  recitals  that  they  should  have  preference  over 
all  debts  to  be  thereafter  contracted,  and  that  in  default  of  the 
payment  of  interest,  the  holder  of  the  bonds  might  enter  into 
possession  of  the  tolls,  water-rates,  and  other  incomes  of  the  com- 
pany, and  might  apply  for  the  appointment  of  a  receiver.  Upon 
a  default  occurring,  the  Supreme  Court  of  the  United  States  held 
that  the  bondholders  were  entitled  to  this  relief,  the  bonds  in 
effect  constituting  a  mortgage.1 

Similar  illustrations,  that  informal  agreements  or  instruments 
are  sufficient  in  equity  to  create  a  charge,  are  furnished  by  the 
English  courts.  Thus,  the  directors  of  the  Strand  Music  Hall 
Company  borrowed  money  under  a  written  agreement  that  they 
would  deposit  with  the  lender,  as  collateral  security,  certain  in- 
complete mortgage  bonds,  constituting  a  first  charge  upon  the 
property.  In  the  winding  up  of  the  company,  a  question  arose 
whether  these  mortgage  bonds,  by  reason  of  their  incomplete- 
ness, constituted  a  valid  charge  upon  the  property  for  this  loan. 
Turner,  L.  J.,  delivering  the  opinion  of  the  court  that  a  valid 
charge  was  created,  said:2  "I  apprehend  that  where  this  court 
is  satisfied  that  it  was  intended  to  create  a  charge,  and  that  the 
parties  who  intended  to  create  it  had  the  power  to  do  so,  it  will 
give  effect  to  the  intention,  notwithstanding  any  mistake  which 
may  have  occurred  in  the  attempt  to  effect  it." 

A  mortgage  not  executed  and  recorded  according  to  law,  never- 
theless lias  priority  of  a  subsequent  mortgage  which  is  expressly 
made  subject  to  the  former.3 

76.    An    agreement    of    a    company   to    set  apart    specific 

i  White   Water  Valley   Canal   Co.   v.  »  Coe  v.  Columbus,  Piqua  &  Ind.  R.  R. 

Vallette,  21  How.  414.     See  §  72.  Co.  10  Ohio  St.  372. 

-  Strand  Music  Hall  Co.  in  re,  3  De  <;., 

J.  &  H.  147,  158.  57 


§J;  77,  78,]       FORM   AND    CONSTRUCTION    OF    CORPORATE   MORTGAGES. 

earnings  or  property  in  the  hands  of  a  third  person  to  meet  the 
interest  or  principal  of  its  bonds,  creates  an  equitable  lien  or 
charge.  The  legal  proposition,  which  is  an  accepted  doctrine  of 
courts  of  equity,  is  tersely  stated  by  Judge  Dillon  : 1  "  If  a  debtor, 
by  a  concluded  agreement  with  a  creditor,  sets  apart  a  specified 
amount  of  a  specific  fund  in  the  hands,  or  to  come  into  the  hands 
of  another  from  a  designated  source,  and  directs  such  person  to 
pay  it  to  the  creditor,  which  he  assents  to  do,  this  is  a  specific 
appropriation,  binding  upon  the  parties  and  upon  all  persons  with 
notice,  who  subsequently  claim  an  interest  in  the  fund  under  the 
debtor." 

77.  An  equitable  mortgage  must  have  some  foundation  in 
contract,  or  must  arise  by  necessary  implication  from  the 
terms  or  scope  of  a  contract.  A  provision  in  a  railroad  mortgage 
to  trustees  made  for  the  purpose  of  retiring  an  existing  mortgage 
and  prior  liens,  and  of  completing  and  equipping  a  railroad,  that 
the  expenditure  of  all  sums  realized  from  the  sale  of  the  bonds 
secured  shall  be  made  with  the  approval  of  at  least  one  of  the 
trustees,  whose  assent  in  writing  shall  be  necessary  to  all  contracts 
made  by  the  corporation,  before  the  same  shall  be  a  charge  upon 
any  of  the  sums  received  from  said  sales,  does  not  create  a  charge 
in  favor  of  one  who  has  afterwards  built  a  portion  of  the  road 
under  a  written  contract  with  the  corporation,  if  the  contract  did 
not  itself  impose  such  charge.  To  create  a  charge  upon  money 
which  has  no  ear-mark  would  require  evidence  of  the  most  unmis- 
takable language.  It  is  not  enough  to  create  such  a  charge  that 
the  party  claiming  the  lien  may,  through  his  efforts  or  outlays, 
have  added  to  the  security  of  the  bondholders.2 

III.  Statutory  Liens  and  Mortgages. 

78.  A  mortgage  may  be  constituted  by  statute  without  the 
execution  of  any  deed  of  conveyance.3  In  this  way  the  Union  Pa- 
cific Railroad  was  mortgaged  to  the  United  States  to  secure  the 
repayment  of  the  amount  of  bonds  of  the  United  States  issued 
and  delivered  to  the  company  to  aid  in  the  construction  of  the 
road ;  the  act  of  Congress  authorizing  such  aid  4  providing  that 

1  Ketclmm  v.  Pacific  ^Railroad,  4  Dill.  3  Wilson  v.  Boyce,  92  U.  S.  320;  S.  C. 
78,  86.     See  §  122.  2  Dill.  539  ;  Murdock  v.  Woodson,  2  Dill. 

2  Dillon  v.  Barnard,  1  Holmes,  386.  188     Woodson  v.  Murdock,  22  Wall.  351. 

58  4  Act  of  July  1, 1862, 12  Stat,  at  Large, 


STATUTORY   LIENS   AND   MORTGAGES.  [§  70. 

"  the  issue  of  such  bonds  and  delivery  of  them  to  the  company 
shall  ipso  facto  constitute  a  first  mortgage  on  the  whole  line  of  the 
railroad  and  telegraph,  together  with  the  rolling  stock,  fixtures, 
and  property  of  every  kind  and  description  ;  and  in  consideration 
of  which  said  bonds  may  be  issued  ;  and  on  the  refusal  or  fail- 
ure of  said  company  to  redeem  said  bonds,  or  any  part  of  them, 
when  required  to  do  so  by  the  secretary  of  the  treasury,  in 
accordance  with  the  provisions  of  this  act,  the  said  road,  with  all 
the  rights,  functions,  immunities,  and  appurtenances  thereto  be- 
longing, and  also  all  lands  granted  to  the  said  compairy  by  the 
United  States  which  at  the  time  of  said  default  shall  remain  in 
the  ownership  of  said  company,  may  be  taken  possession  of  by 
the  secretary  of  the  treasury  for  the  use  and  benefit  of  the 
United  States." 

When  a  statute  clearly  provides  for  a  lien,  it  is  not  essential 
that  the  bonds  issued  by  the  corporation  should  themselves  recite 
the  words  of  the  act  creating  the  charge,  if  they  show  by  refer- 
ence to  the  act  that  they  were  intended  to  carry  the  benefit  of 
the  lien.  An  act  authorizing  a  canal  company  to  boraow  money 
on  its  bonds  provided  that  these  should  "  take  precedence  and 
have  priority  of  lien  on  the  said  canal  and  the  tolls  thereon 
and  other  property  of  the  said  company  over  all  claims."  The 
bonds  issued  for  the  money  borrowed  by  the  company  stated  that 
the  holder  was  "  entitled  to  such  security  therefor  as  is  mentioned 
in  the  said  recited  act."  The  court  held  that  the  holders  were 
entitled  to  a  charge  upon  the  canal  and  tolls  as  provided  by  the 
act,  and  to  the  appointment  of  a  receiver.1 

79.  A  statutory  lien  can  exist  only  when  the  statute  in 
terms  not  doubtful  expresses  the  intention  to  give  a  lien. 
Thus  under  a  statute  giving  a  city  authority  to  aid  a  railroad  com- 
pany, and  to  receive  security  from  the  company  by  mortgage  or 
pledge  of  stock,  the  city  having  accepted  security  of  the  latter 
kind,  it  can  have  no  statutory  lien  by  reason  of  a  clause  of  the 
statute  which  declares  that  the  above  liens,  mortgages,  or  other 
securities,  shall  have  priority  of  all  claims  or  obligations  subse- 
quently contracted  by  the  company.2 

489;  and  see  United  States  v.  Union  J';icilic  '  Town  of  I  )undas  v.  I  tesjardins  Cunal 
It.  It.  Co- 'j  1  U.  S.  72.  Co.  17  Gram  (Upper  Can.  Ch.),  27. 

2  Cincinnati  City  v.  Morgan,  3  Wall.  275. 

59 


§  79.]       FORM   AND    CONSTRUCTION    OF   CORPORATE   MORTGAGES. 

To  constitute  a  statutory  lien,  it  must  clearly  appear  that  it  was 
intended  that  the  statute  should  have  this  effect.  The  Brunswick 
and  Florida  Railroad,  in  1856,  issued  its  bonds  without  securing 
them  by  mortgage,  and  subsequently  issued  other  bonds  with  such 
security.  The  holder  of  the  first  bonds  claimed  that  under  the 
charter  of  the  company  these  bonds,  ipso  facto,  became  a  lien  upon 
the  property  of  the  company,  which  was  unaffected  by  the  subse- 
quent mortgage.  The  charter  upon  which  this  claim  was  based 
provided,  that  "it  should  be  lawful  for  the  board  of  directors  to 
direct  the  president  and  secretary  to  issue  bonds  of  said  company, 
which  shall  be  binding  on  the  property  of  said  company,  and  on 
such  other  property  belonging  to  the  stockholders  as  they  may 
pledge  to  said  company,  by  mortgage,  to  meet  their  own  engage- 
ments or  the  engagements  of  the  company."  The  court,  however, 
held  that  these  words  did  not  give  a  statutory  lien  upon  the  com- 
pany's property,  which  was  superior  or  equal  to  the  lien  of  the  sub- 
sequent mortgage.1  The  case  of  Collins  v.  Central  Bank  of  Geor- 
gia2 was  discussed  and  considered  at  length  in  this  connection. 
The  Monroe  Railroad  and  Banking  Company  was  authorized  to 
do  a  banking  business  and  to  issue  bills  for  circulation,  and  the  act 
provided  that  the  "  railroad  to  be  built  by  said  company,  together 
with  all  the  revenues  arising  therefrom,  and  all  the  property, 
equipments,  and  effects  therewith  connected,  should  be  pledged 
and  bound  for  the  redemption  of  the  same."  The  company  hav- 
ing suspended  payment,  and  being  unable  to  complete  its  road,  ar- 
ranged with  contractors  to  do  this  under  a  written  agreement  that 
they  should  have  a  lien  upon  the  entire  road.  Upon  a  subsequent 
sale  of  the  road  under  a  creditor's  bill,  the  court  held,  with  refer- 
ence to  the  distribution  of  the  proceeds,  that  under  the  charter  the 
bill  holders  had  a  lien  in  preference  to  the  contractors  as  to  all 
that  portion  of  the  road  built  by  the  company  prior  to  the  agree- 
ment with  the  contractors,  and  that  the  latter  had  a  prior  lien  only 
upon  the  part  they  built.  This  case  is  distinguished  from  the  case 
above  noticed  chiefly  by  the  different  nature  and  character  of  the 
debts  in  the  two  cases ;  the  one  being  an  ordinary  debt  for  a  loan 
of  money  and  the  other  a  debt  to  bill  holders  issued  under  author- 
ity of  the  state  for  circulation  among  the  people,  and  having,  upon 
grounds  of  public  policy,  a  claim  to  protection.     Besides,  the  lan- 

1  Brunswick   &  Albany  R.   R.   Co.    v.         2  1  Kel  y  (Ga.),  435. 
Hughes,  52  Ga.  557. 

60 


STATUTORY   LIENS   AND    MORTGAGES.  [§§  80,  81. 

guage  regarding  the  lien  was  considered  stronger  in  the  case  of  the 
banking  company  than  in  the  case  of  the  railroad  ;  and  in  the  lat- 
ter case  it  was  regarded  as  only  a  fair  construction  of  the  whole 
provision,  that,  while  certain  property  of  the  stockholders  mort- 
gaged to  the  company  was  to  be  capable  of  being  charged  with 
this  debt,  it  was  not  intended  to  discharge  the  company  itself  and 
its  property.  In  other  words,  the  intent  to  create  a  lien  upon  the 
company's  property  was  not  manifested  with  certainty  enough  to 
establish  it. 

80.  A  statutory  mortgage  is  construed  in  the  same  man- 
ner as  one  executed  by  deed,  as  regards  the  property  it  em- 
braces. Thus,  the  State  of  Missouri  having  issued  bonds  in  aid 
of  the  Cairo  and  Fulton  Railroad  Company,  under  an  act  which 
declared  that  they  should  "  constitute  a  first  lien  and  mortgage 
upon  the  road  and  property"  of  the  company,  ib  was  held  by  the 
Supreme  Court  6f  the  United  States  that  a  valid  lien  was  created 
by  the  act  upon  all  the  lands  of  the  company,  including  such  as 
did  not  constitute  the  road,  or  any  part  of  it,  and  were  not  used 
in  connection  with  it.1  The  generality  of  the  language  is  no  ob- 
jection to  the  validity  of  the  mortgage.  It  is,  moreover,  as  com- 
petent for  a  railroad  company  to  mortgage  the  lands  it  has  re- 
ceived from  the  state  in  aid  of  its  construction  as  it  is  to  mort- 
gage the  lands  used  for  its  track  or  appurtenant  to  it.  The  word 
"  property "  is  broad  enough  to  cover  the  outside  lands  of  the 
company,  and  the  legislature  must  be  regarded  as  having  intended, 
in  using  this  word,  to  cover  all  the  corporate  property  of  the  com- 
pany of  every  nature  and  wherever  situated  ;  and  such  was  the 
construction  given  to  this  language  by  the  Supreme  Court  of  Mis- 
souri.2 

81.  A  statutory  mortgage  by  a  railroad  company,  like  a 
mortgage  created  by  deed,  may  embrace  after-acquired  land 
and  other  property  acquired  after  the  creation  of  the  lien,  if  the 
intention  to  embrace  such  land  be  manifest  in  the  act  creating 
the  lien.8  A  statutory  mortgage  in  favor  of  the  State  of  Missouri, 
making  all  bonds  issued  by  tin',  state  in  aid  of  certain  railroad 
companies  a  first  lien  upon  the  road  and  property  of  the  several 

i  Wilson  '■.  Boyce,  *.»^  U.  S.  320,  affirm-        a  Whitehead  v.  Vineyard,  ."><>  Mo.  30. 
ing  &  C.  '■!■  Hill.  :;  Whiteheadw.  Vineyard, supra. 

Gl 


§  82.]       FORM    AND    CONSTRUCTION   OF    CORPORATE   MORTGAGES. 

companies  securing  them,  was  held  to  embrace  after-acquired  lands, 
although  outside  the  railroad  and  not  necessary  to  its  use.  The 
term  "  road  and  property  "  is  broad  enough  to  cover  by  the  lien 
of  the  state  all  the  corporate  property  of  the  companies  named 
in  the  act,  and  clearly  shows  an  intention  to  cover  all  their  prop- 
erty.1 A  subsequent  foreclosure  and  sale  of  the  road  and  its 
property  under  such  act  carries  the  title  to  such  land,  although 
the  company  has  in  the  mean  time  conveyed  it  to  a  purchaser.  A 
purchaser  from  the  company  subsequent  to  the  mortgage  can  ac- 
quire a  clear  title  only  through  a  release  of  the  lien,  or  by  virtue 
of  a  statute  authorizing  sales  by  the  company  discharged  of  the 
lien  in  favor  of  the  state. 

82.  Release  of  statutory  lien. —  In  1868  the  State  of  Missouri, 
holding  a  statutory  lien  upon  the  Pacific  Railroad  of  Missouri,  as 
indemnity  for  bonds  issued  in  aid  of  that  company  to  the  aggre- 
gate of  67,000,000,  passed  an  act  by  which,  in  consideration  of 
$5, 000,000,  the  state  would  release  and  discharge  the  lien.  This 
amount  was  paid  to  the  state  by  the  railroad  company,  and  the 
release  was  made  ;  and  on  the  faith  of  this  release  the  company 
mortgaged  its  road  and  sold  its  bonds  with  the  intention  of  giving 
a  first  mortgage  lien.  The  state  had  previously  provided  in  its 
Constitution  that  in  the  event  of  any  default  in  the  payment  of 
bonds  issued  by  the  state  in  aid  of  railroad  companies,  the  general 
assembly  should  provide  by  law  for  the  sale  of  the  road  and  fran- 
chises of  the  company  thus  making  default,  under  the  lien  re- 
served to  the  state  ;  but  that  the  general  assembly  should  have 
no  power,  for  any  purpose  whatever,  to  release  the  lien  held  by 
the  state  upon  any  railroad.  In  1873  the  legislature  of  the  state 
directed  the  governor  and  attorney  general  of  the  state  to  fore- 
close the  mortgage  which  had  been  released,  upon  the  ground 
that  the  release  was  illegal.  The  trustees  of  the  mortgage  sub- 
sequently made  applied  to  the  Circuit  Court  of  the  United  States 
for  an  injunction  restraining  this  sale,  and  thus  the  constitution- 
ality of  the  act  of  the  legislature  authorizing  the  release  of  the 
lien  in  favor  of  the  state  was  called  in  question.  Judge  Dillon,  in 
granting  the  injunction,  upon  this  question  said  :  2  "  Looking  back 

1  Whitehead  v  Vineyard,  supra.  on  appeal,  Woodson  v.  Murdock  22  Wall. 

2  Murdock  v.  Woodson,  2  Dill.  188  ;  af-  351.  See,  also,  Darby  v.  Wright,  3  Blatchf. 
firmed  by  the  Supreme  Court  of  the  U.  S.     170. 

62 


STATUTORY    LIENS   AND   MORTGAGES.  [§  83. 

upon  the  transaction,  I  cannot  say  that  the  agreement  to  release 
the  security  of  the  state  for  $5,000,000  should,  under  the  circum- 
stances, and  as  respects  the  innocent  mortgagees  of  the  company, 
be  held  to  be  such  a  release  as  was  forbidden  by  the  Constitution. 
The  state  had  released  or  waived  its  first  lien  on  the  North  Mis- 
souri Railroad,  receiving  no  consideration  therefor,  and  agreed  to 
take  a  second  lien.  This  was  at  or  about  the  time  the  constitu- 
tional convention  was  in  session,  and  undoubtedly  it  was  such  a 
transaction  that  was  in  the  contemplation  of  the  convention  and 
the  people  when  they  adopted  the  provision  prohibiting  the  state 
from  releasing  its  lien  on  any  railroad.  It  was  not  intended  to 
prohibit  the  release  of  a  lien  for  full  value  ;  and  of  such  value 
the  legislature  was  left  to  be  the  judge,  and  with  its  judgment 
the  people  of  the  state  must  be  content.  It  is  urged  by  counsel 
that  this  view  makes  the  constitutional  provisions  of  little  value, 
since  it  leaves  it  in  the  power  of  the  legislature  to  sacrifice  the 
interests  of  the  people  by  corrupt  or  injudicious  bargains,  and  the 
court  is  appealed  to,  to  prevent  the  sacrifice  which,  it  is  claimed, 
the  Act  of  1868  decreed.  But  we  have  only  to  deal  with  the  ques- 
tion of  legislative  power  ;  and  the  legislature,  as  the  representa- 
tive of  the  state  as  a  mortgagee,  and  as  the  representative  of  her 
other  interests,  has  full  power  except  so  far  as  restrained  by  the 
Constitution.  If  it  had  been  thought  that  the  legislature  could 
not  have  been  trusted  with  the  sale  or  disposition  of  the  state's 
interest  as  to  the  amount  to  be  received,  undoubtedly  additional 
restraints  would  have  been  imposed.  The  state  was  not  disabled 
from  releasing  its  security  on  receiving  full  value  for  it,  and  of  its 
value  it  was  left  by  the  Constitution  to  be  the  judge,  —  so  left  be- 
cause there  was  nothing  to  restrain  it.  I  feel  quite  clear  in  the 
conviction  that  the  equities  of  the  bondholders  under  the  plaintiff's 
mortgage  are  superior  to  those  of  the  state,  and  on  this  ground, 
and  on  the  ground  that  in  case  of  controversy  as  to  priority  of 
lien,  the  priority  ought  to  be  settled  before  an  irredeemable  sale 
is  made,  1  award  a  temporary  injunction." 

83.  Not  only  may  a  statutory  lien  be  waived,  but  another 

person  may  be  substituted  by  agreement  of  parties  in  place  of 

the.  original  lien  holder.    This  proposition  is  illustrated  in  another 

phase  of  the  statutory  lien  last  mentioned.1     Trior  to  the  release. 

1  Ketcbum  v.  Pacific  Railroad,  i  Dill.  78. 

63 


§  84.]       FORM    AND   CONSTRUCTION    OF   CORPORATE   MORTGAGES. 

by  the  State  of  Missouri  of  the  lien  in  its  favor,  and  the  making 
of  the  mortgage  referred  to,  the  county  of  St.  Louis,  under  legis- 
lative authority,  had  loaned  its  bonds  to  the  railroad  company  to 
the  amount  of  $700,000,  to  enable  it  to  complete  the  road.  The 
county  was  secured  by  a  provision  in  the  act  authorizing  the  loan, 
that  the  person  who  had  been  in  custody  of  the  earnings  of  the 
road,  in  behalf  of  the  state,  should  pay  into  the  county  treasury 
out  of  such  earnings  a  sum  sufficient  to  meet  the  interest  on  the 
bonds.  The  effect  of  this  provision,  when  acted  upon,  was,  that 
the  state,  then  having  a  complete  and  perfect  lien  upon  all  the 
earnings  of  the  road,  waived  it  to  this  extent  in  favor  of  the 
county,  and  the  county  was  pro  tanto  substituted  in  its  place. 
This  lien  of  the  county  was  recognized  in  the  subsequent  legisla- 
tion under  which  the  state  released  its  lien.  The  company  hav- 
ing afterwards  made  a  second  and  third  mortgage,  a  foreclosure 
sale  was  made  under  the  latter,  the  holders  of  which  claimed  that 
the  county  was  not  entitled  to  any  charge  or  lien  upon  the  pro- 
ceeds. The  court,  however,  established  the  lien,  upon  the  ground 
that  the  effect  of  the  act,  and  the  acceptance  of  it  by  the  county 
and  the  company,  was  to  convert  its  provisions  into  a  contract 
which  created  a  lien,  having  its  origin  by  statute,  and  equitable 
in  its  nature,  and  of  which  the  subsequent  mortgagees  had  notice 
through  the  statutes  creating  and  recognizing  it. 

IV.     Who  may  execute  a  Corporate  Mortgage. 

84.  The  directors  of  a  railway  corporation,  in  the  absence 
of  any  restriction  in  its  charter  or  by-laws,  may  exercise  all  the 
authority  of  the  corporation  itself  in  pledging  its  real  or  personal 
property  to  secure  any  debts  which  it  is  authorized  to  contract.1 
Being  the  agents  of  the  corporation  rather  than  the  corporate 
body,  they  may  exercise  their  powers  beyond  the  state  by  whose 
laws  the  corporation  was  created  ;  and  therefore  directors  of  a 
Vermont  corporation  may  grant  a  valid  mortgage  at  a  meeting 
held  in  Massachusetts.2 

When  a  corporation  has  by  law  the  power  to  execute  a  mort- 

1  1  Jones   on   Mortgages,  §§    124-128.         2  Arms  v.  Conant,  36  Vt.  744;  and  see 

Hendeeu.  Pinkerton,  14  Allen  (Mass.)  381,  Galveston  R.  R.  Co.  v.  Cowdrey,  11  Wall, 

per  Foster,  J. ;  McCurdy's  Appeal,  65  Pa.  459  ;  Ohio  &  Mississippi  R.  R.  Co.  v.  Mc- 

St.  290.     And  see  Bank  of  Middlebury  v.  Pherson,  35  Mo.  13  ;  Wright  v.  Bundy,  11 

Rutland  &.  Washington  R.  R.  Co.  30  Vt.  Ind  398,  404;  MeCall  v.  Byram  Mfg.  Co. 

159,  1G9.  6  Conn.  428. 

64 


WHO   MAY  EXECUTE   A   CORPORATE   MORTGAGE.  [§  85. 

gage  of  its  franchises  and  property,  a  mortgage  executed  by  au- 
thority of  the  directors  alone  is  valid.1  Any  doubt  of  the  validity 
of  such  a  mortgage  is  removed  by  acts  of  the  corporation  in  rati- 
fication of  it,  such  as  the  issuing  of  bonds  under  it  and  the  pay- 
ing of  interest  upon  it.2 

It  is  a  sufficient  consideration  for  upholding  a  mortgage  that  it 
was  made  in  conformity  with  a  binding  resolution  of  the  board  of 
directors  to  secure  the  payment  of  the  company's  bonds,  so  that 
they  might  be  more  advantageously  disposed  of  in  the  market.3 

85.  A  power  to  an  officer  or  agent  of  a  corporation  to  bor- 
row money  on  its  behalf  includes  authority  to  pledge  its 
bonds,  or  to  give  other  ordinary  securities  for  the  money  bor- 
rowed. The  Minnesota  and  Pacific  Railroad  Company  authorized 
its  president  to  borrow  such  sums,  for  such  length  of  time  and  at 
such  rate  of  interest,  as  he  might  think  proper,  and  to  purchase 
iron  rails,  locomotives,  and  machinery  on  such  terms  as  he  might 
deem  advisable  ;  and  in  order  to  do  so,  to  make,  execute,  and  de- 
liver obligations,  bills  of  exchange,  contracts,  and  agreements  of 
the  company.  The  president  accordingly  made  a  contract  in  New 
York  for  a  purchase  of  railroad  iron,  and  an  advance  of  $16,000 
to  the  company  on  its  notes,  and  for  the  security  of  this  contract 
pledged  $45,000  of  bonds  of  the  State  of  Minnesota  belonging  to 
the  company.  The  Supreme  Court  of  the  United  States  held 
that  he  was  clearly  authorized  to  pledge  the  bonds.  He  was  em- 
powered to  make  actual  purchases,  and  to  borrow  money,  not 
merely  to  make  executory  contracts  for  future  purchases  and 
loans.  To  give  collateral  security  for  these  undertakings  was 
within  the  limits  of  such  a  power.4 

The  president  of  a  railway  corporation  having  authority  by  a 
by-law  to  act  as  business  and  financial  agent  of  the  corporation 
cannot  bind  it  by  a  mortgage  of  personal  property,  even  such  as 
a  locomotive,  given  to  secure  a  debt  of  the  corporation.5  His  au- 
thority in  such  case  is  confined  to  the  ordinary  business  of  the 
corporation.  The  fact  that  he  affixes  to  the  instrument  the  cor- 
porate seal  adds  nothing  to  the  validity  of  the  instrument.      That 

i  McCurdy's  Appeal,  65  Pa.  St.  290.  Oregon,  125  ;   Hoyt  v.  Thompson,  5  N.   Y. 

2  McCurdy's  Appeal,  tupra.  320,  335;   Whitwell  v.  Warner,   20   Vt. 

15  Butler  V.  Kalim,  4G  Md.   541.  425;  Despatch  Line  of  PacketBW.  Bellamy 

«  Hatch  v.  Coddington,  95  U.  S.  48.  Manuf.  Co.  12  N.  11.  205. 

6  Luse  v.   Isthmus  Transit    Rv.  Co.  6 

65 


§§  86,  87.]       FORM    AND    CONSTRUCTION    OF    CORPORATE   MORTGAGES. 

does  not  make  the  instrument  the  deed  of  the  company,  unless  it 
was  affixed  by  authority.  The  seal  bears  upon  its  face  the  pre- 
sumption that  the  instrument  was  executed  by  competent  author- 
ity from  the  corporation  ;  but  this  presumption  may  be  repelled  by 
showing  that  the  seal  was  affixed  without  authority.  '  In  general, 
it  may  be  said  that  when  a  transfer  of  corporate  property  requires 
the  use  of  the  common  seal  it  cannot  be  made  without  the  assent 
and  authority  of  the  board  of  directors. 

86.  As  regards  the  execution  of  a  corporation  mortgage, 
if  the  deed  purports  to  be  the  deed  of  the  corporation,  the 
fact  that  it  is  not  signed  by  the  corporate  name,  but  by  an  officer 
having  the  power  to  execute  the  deed  in  behalf  of  the  company, 
in  his  individual  name,  does  not  invalidate  it  as  the  deed  of  the 
corporation.1  But  if  the  deed  purports  to  be  the  deed  of  the  offi- 
cer, and  is  signed  by  him  in  that  manner,  it  is  not  the  deed  of  the 
corporation.2 

Where  there  is  ambiguity  on  the  face  of  a  note  signed  by  the 
president  of  a  railroad  company  in  his  individual  name,  without 
addition,  acknowledging  indebtedness  for  labor  performed  on  land 
of  the  company,  parol  evidence  is  admissible  to  ascertain  whether 
the  note  be  his  own  obligation  or  that  of  the  company.3 

87.  The  mere  fact  that  a  mortgage  deed  has  the  seal  of  a 
corporation  attached  does  not  make  it  the  deed  of  the  corpo- 
ration, unless  the  seal  was  placed  upon  it  by  some  one  duly  au- 
thorized. The  seal  being  affixed  to  the  deed,  there  is  a  presump- 
tion that  it  was  rightfully  affixed  ;  but  this  presumption  may  be 
overthrown  by  parol  evidence  to  the  contrary.  When  it  is  shown 
that  the  officers  who  executed  the  mortgage  did  not  seal  it  then  or 

1  Haven  v.  Adams,  4  Allen   (Mass  ),  80.  2  Brinley  v.  Mann,  2  Cush.  (Mass.)  337. 

The  mortgage  in  this  case  was  executed  in  In   this  case  the  words  were :  "  In  witness 

these  words :  "In  testimony  whereof,  said  whereof   I   (the  treasurer),  in    behalf   of 

party  of  the  first  part  have  caused  these  said  company,  and  as  their  treasurer,  have 

presents  to  be  signed  by  their  president,  hereunto  set   my  hand  and  seal.   A.  B., 

and  their  common    seal  to  be  hereto  af-  Treasurer,"  &c,  and  seal.    See,  also,  Miller 

fixed.  A.  B., President,"  and  seal.  And  see  v.  Rutland  &  Washington   R.   R.   Co.  36 

Despatch  Line  of  Packets  v.  Bellamy  Manf.  Vt.  452. 

Co.  12  N.  H.  205.  In  Maine,  see  as  to  ef-  s  Richmond,  Fredricksburg  &  Potomac 

feet  of  statute  in  such  case,  Porter  v.  An-  R.  R.  Co.  v.  Snead,  \9  Gratt.  354. 
droscoggin  &  Kennebec  R.  R.  Co.  37  Me. 
349.     See  1  Jones  on  Mortgages,  §  130. 

66 


WHO   MAY  EXECUTE  A   CORPORATE   MORTGAGE.  [§  88. 

afterwards  ;  that  the  officer  who  had  the  seal  in  custody  never  af- 
fixed it,  nor  authorized  any  one  else  to  do  so ;  and  that  the  instru- 
ment was  recorded  without  a  seal,  the  burden  is  thrown  upon  the 
mortgagee  to  prove  that  it  was  properly  sealed.  Otherwise  the 
conclusion  will  be  drawn  that  the  seal  was  fraudulently  abstracted 
from  the  lawful  custodian  of  it,  and  wrongfully  affixed  to  the 
mortgage.1 

88.  Ratification.  —  The  execution  of  a  mortgage  by  the  offi- 
cers of  a  railroad  company,  without  previous  authority  from  the 
corporation,  is  ratified  and  confirmed  by  the  payment  of  interest 
upon  the  bonds,  and  by  other  acts  showing  a  clear  recognition  of 
the  mortgage  by  the  corporation.2 

The  receiving  and  retaining  of  money  advanced  by  bondholders 
upon  a  railroad  mortgage  amounts  to  a  ratification  of  the  con- 
tract under  which  the  money  was  obtained,  and  it  does  not  matter 
that  the  resolution  authorizing  the  giving  of  the  mortgage  did  not 
give  the  president  and  secretary  authority  to  make  so  extensive  a 
mortgage  as  that  which  was  in  fact  executed.3  In  like  manner,  if 
the  president  and  secretary  of  a  railway  company  execute  a  mort- 
gage in  broader  terms  than  they  were  authorized  by  the  resolu- 
tion of  the  directors  to  make  it,  and  money  is  advanced  in  good 
faith  upon  its  bonds,  and  is  received  and  used  by  the  company 
in  constructino;  its  road,  this  will  be  deemed  a  ratification  of  the 
contract  under  which  the  money  was  advanced.4 

Under  a  statute  which  provides  that  a  majority  of  the  stock- 
holders at  any  legal  meeting  is  requisite  for  the  valid  transaction 
of  any  business,  except  that  the  board  of  directors  shall  not  be  em- 
powered to  mortgage  or  hypothecate  the  property  of  the  company, 
unless  by  a  vote  of  two  thirds  in  interest  of  the  stockholders, 
while  it  is  competent  for  a  majority  to  ratify  the  execution  of  a 
promissory  note  of  the  company,  it  requires  a  two  thirds  vote  to 
ratify  the  execution  of  a  mortgage  given  to  secure  such  note. 
Therefore,  a  subsequent  resolution  adopted  by  a  majority  of  the 
Stockholders,  to  levy  an  assessment  for  the  express  purpose  of 
liquidating  the  note,  would  be  a   distinct  recognition   of  it,  and 

i   Kochler  v.  Black  River  Falls  Iron  Co.         3  Klwell  v.  Grand  St.  &  Newtown  R.  R. 
2  Black,  715;  and  see  Seed  v.  Bradley,  17     Co.  f>7  Barb.  (N.  V.)  88. 
1)1,-321.  4    Klwell  r.  Grand  St    &  Newtown  K.  R. 

-  McCurdy'a  Appeal,  65  Pa.  St.  290.         Co,  supra. 

G7 


§  89.]       FORM   AND    CONSTRUCTION    OF    CORPORATE   MORTGAGES. 

equivalent  to  a  previous  authority  to  execute  it.  But  the  mort- 
gage stands  upon  a  different  footing.  It  cannot  be  ratified  by  a 
less  number  of  stockholders  than  was  required  for  its  execution. 
The  assessment  being  valid,  the  stockholders  had  no  option  but  to 
pay  it,  and  their  understanding  that  the  money  was  to  be  applied 
to  the  payment  of  the  note  does  not  show  that  they  admitted  the 
validity  of  the  mortgage.1  The  subsequent  assent  of  two  thirds 
of  the  number  of  stockholders  by  any  instrument  in  writing  which 
identifies  the  mortgage  is  sufficient.  The  requirement  as  to  the 
number  of  stockholders  necessary  to  authorize  a  mortgage  has 
reference  to  the  stock  actually  issued,  and  not  to  the  nominal 
amount  to  which  the  capital  stock  is  limited. 

V.    Construction  of  Various  Provisions  of  Corporate  Mortgages. 

General  statement.  —  Mortgages  by  railroad  comapnies  and 
other  corporations  differ  so  widely  in  their  form  and  provisions, 
that  it  would  be  of  little  use  to  take  up  the  several  parts  of  a  cor- 
porate mortgage  and  treat  in  detail  of  their  construction  in  the 
way  that  the  several  parts  of  an  ordinary  mortgage  might  be 
treated  of.2  Without,  therefore,  attempting  anything  of  this  nat- 
ure, and  without  attempting  to  make  a  systematic  examination  of 
the  several  provisions  of  railroad  and  other  corporate  mortgages, 
it  is  proposed  in  this  division  of  the  chapter  to  state  the  construc- 
tion which  the  courts  have  placed  upon  various  clauses  peculiar  to 
such  mortgages. 

89.  Restrictions  or  provisions  in  a  statute  authorizing  a 
corporation  to  issue  bonds  secured  by  mortgage  enter  into 
the  contract,  and  bind  the  parties  to  it,  although  the  mortgage  it- 
self contains  inconsistent  provisions.  Thus,  where  a  mortgage  is 
made  to  secure  bonds  with  interest  payable  semi-annually,  under 
the  authority  of  a  statute  which  declares  that  the  bonds  shall  not 
mature  at  an  earlier  period  than  thirty  years,  a  provision  in  them 
that,  upon  a  failure  to  pay  any  coupon  when  presented  for  pay- 
ment, and  a  continued  default  thereon  for  six  months,  the  whole 
sum  mentioned  in  the  bonds  shall  become  due  and  payable,  is 
void.    In  such  case,  however,  the  mortgage   may  properly  provide 

1  Forbes  v.  San  Rafael  Turnpike  Co.     Co.  v.  King's  County  Manuf.  Co.  7  Hun 
50  Cal.  340;  and  see  Greenpoint  Sugar     (N.  Y.).  44. 

2  1  Jones  on  Mortgages,  §§  60-101. 

68 


VARIOUS   PROVISIONS   OF   CORPORATE   MORTGAGES.  [§  90. 

that  it  shall  be  foreclosed  upon  non-payment  of  interest.  When  a 
foreclosure  suit  is  brought  in  consequence  of  such  default,  and  the 
sum  ascertained  to  be  due  on  the  coupons  is  paid  within  such  rea- 
sonable time  as  the  court  shall  appoint,  —  say  ninety  days  or  six 
months,  or  until  the  next  term  of  court,  —  no  further  proceedings 
in  the  suit  can  be  had  until  there  is  another  default.  If  the  sum 
be  not  so  paid,  a  sale  of  the  property,  with  a  foreclosure  of  all  the 
rights  subordinate  to  the  mortgage,  should  be  ordered,  with  a  di- 
rection to  bring  the  proceeds  into  court.  There  can  be  but  one 
decree  of  foreclosure  of  the  same  mortgage  on  the  same  property  ; 
and  it  is  a  necessity  of  that  foreclosure,  under  the  principles  of 
equity,  that  all  the  sums  secured  by  the  mortgage  shall  be  pro- 
tected according  to  their  priority  of  lien.  The  mortgagee  will 
have  a  lien  on  the  money  thus  paid  into  court,  not  only  for  his 
overdue  coupons,  but  for  his  principal  debt,  and  it  must  be  pro- 
vided for  in  the  order  distributing  the  proceeds  of  sale.1 

When  authority  is  given  in  general  terms  to  an  officer  or  agent 
of  a  corporation  to  execute  a  mortgage  of  its  property,  he  has  im- 
plied authority  to  execute  it  in  the  usual  form,  and  with  the  usual 
provisions  for  mortgages  of  that  kind  ;  but  there  is  no  implied  au- 
thority to  execute  a  mortgage  with  unusual  provisions.  Thus,  a 
stipulation  that  the  principal  sum  secured  should  become  due  at 
the  option  of  the  holder,  upon  default  in  the  payment  of  the  in- 
terest, being  unusual  in  mortgages  executed  in  Wisconsin,  the  Su- 
preme Court  of  that  state  held  that  under  such  general  authority 
the  agent  could  not  bind  the  company  by  such  a  stipulation.  The 
unauthorized  stipulation  would  not,  however,  invalidate  the  mort- 
gage in  any  other  respect.2 

90.  The  whole  debt  may  be  made  to  become  due  upon  any 
default  in  the  payment  of  interest  or  of  principal.  A  provision  in 
a  railway  mortgage  made  to  trustees  for  the  benefit  of  bondhold- 
ers, that  upon  any  default  in  the  payment  of  any  instalment  of 
the  principal  or  interest,  the  whole  debt  shall  become  due  and 
payable,  if  not  inserted  in  the  bonds  secured  by  the  mortgage,  may 
not  affect  their  payment,  or  enable  a  bondholder  to  enforce  them 
by  suit  at  law  as  becoming  due  upon  a  default  in  the  payment 
of  interest.     In   such  case  the   interest  clause  is  not  regarded  as 

1  Howell  v.  Western  B.  B.  Co.  94  U.  S.        2  Jesup  r.  City  Bank  ofBaeine.U  Wis. 

463.  331  ;  1  Jones  on  Mortgages,  §  129. 

69 


§  91.]       FORM   AND    CONSTRUCTION   OF   CORPORATE   MORTGAGES. 

having  been  placed  in  the  mortgage  to  give  the  several  bondhold- 
ers a  right  of  action  upon  it  for  the  principal  of  the  bonds,  but 
to  give  the  trustees,  with  whom  the  covenant  was  made,  in  trust 
for  the  bondholders,  a  right  of  action  upon  it,  so  that,  through 
foreclosing  the  mortgage,  it  might  be  a  more  complete  security  to 
the  bondholders  with  such  a  clause  than  it  would  be  without  it. 
Such  was  the  conclusion  in  one  case,1  although  upon  each  of  the 
bonds  was  a  certificate,  signed  by  the  trustees,  which  stated  that 
the  said  series  of  bonds  was  secured  by  a  first  mortgage,  which 
contained  a  provision,  "  that  the  principal  sum  secured  by  said 
mortgage  shall  become  due  in  case  the  interest  on  the  bonds  re- 
mains  unpaid  for  four  months."  A  bondholder  having  brought 
a  suit  upon  some  of  the  bonds  before  their  maturity,  it  was  held 
that  he  could  recover  only  the  interest  remaining  unpaid  and  rep- 
resented by  the  coupons.  Aside  from  the  fact  that  this  clause 
was  not  inserted  in  the  bonds,  reliance  was  placed  by  the  court 
upon  the  fact  that  in  the  mortgage  this  clause  was  connected  with 
other  clauses,  which  had  reference  solely  to  the  enforcing  of  the 
mortgage  security,  and  immediately  following  were  the  words : 
"And  the  lien  or  incumbrance  hereby  created,  for  the  security 
thereof,  may  be  at  once  enforced."  The  inference  was,  that  the 
interest  clause  had  reference  solely  to  the  enforcement  of  the  se- 
curity by  the  trustees. 

91.  A  mortgagee  who  does  not  choose  to  enforce  his  mort- 
gage after  a  default  in  the  payment  of  interest  cannot  be 
compelled  to  receive  payment  of  the  principal  debt  before  its 
maturity,  except  in  pursuance  of  some  general  law  enacted  previ- 
ously to  the  making  of  the  mortgage,  and  therefore  entering  into 
the  substance  of  the  mortgage  contract.  The  State  of  New  Jer- 
sey provided  by  statute  2  that  whenever  a  railroad  company  of 
that  state  became  insolvent,  or  failed  for  ninety  days  after  the 
same  became  due,  to  pay  the  principal  or  interest  on  any  mort- 
gage upon  the  property  and  franchises  of  the  company,  upon  the 
application  of  any  creditor,  mortgagee,  or  stockholder  of  the  com- 
pany, the  chancellor  might  appoint  a  receiver,  and  authorize  him 
to  sell  the  property  and  franchises  of  the  company  free  of  all  in- 

1  Mallory  v.  West  Shore  Hudson  River         2  Laws  1870  (March  17),  ch.  430. 
R.  R.  Co.  35  N.  Y.  Superior  Ct.  174.     See 
1  Jones  on  Mortgages,  §  76. 

70 


VARIOUS    PROVISIONS   OF    CORPORATE   MORTGAGES.  [§  92. 

cumbrances,  and  the  money  arising  from  such  sale  should  be  paid 
into  court  subject  to  the  same  liens,  to  be  disposed  of  as  the 
court  might  direct.  Prior  to  this  statute  the  New  Jersey  West 
Line  Railroad  Company  executed  a  mortgage  to  trustees,  to  se- 
cure certain  bonds,  payable  in  the  year  1900,  one  of  the  terms  of 
the  mortgage  being,  that  if  the  principal  or  interest  should  not  be 
paid  at  the  time  stated,  the  principal  sum  secui'ed  by  the  mort- 
gage should  become  immediately  due  "  at  the  election  of  the  trus- 
tees." Upon  the  subsequent  insolvency  of  the  company,  upon 
the  application  of  creditors,  a  receiver  was  appointed,  and  he  was 
authorized  to  sell  the  property  free  from  the  lien  of  the  mort- 
gage. The  mortgagees  resisted  this  order  of  sale,  and  the  Court 
of  Errors  and  Appeals  1  held  that  the  trustees,  not  having  exer- 
cised their  election  to  regard  the  mortgage  as  due  and  payable, 
the  property  could  not  be  sold  free  from  this  lien.  The  time 
fixed  for  payment  of  a  mortgage  loan  is  a  material  matter,  and  it 
cannot  be  hastened  or  postponed  without  altering  the  contract  in 
point  of  substance.  The  mortgagee  cannot  be  compelled  by  any 
legislative  act  subsequently  framed  to  accept  payment  at  an  earlier 
period  than  the  mortgage  provides  for. 

92.  The  word  "  maturity,"  as  applied  to  the  time  of  pay- 
ment of  bonds  bearing  semi-annual  interest,  was  a  subject  of  in- 
terpretation in  the  case  of  United  States  v.  Union  Pacific  Hail- 
road  Company?  where  the  question  was  whether  the  company  was 
required  to  pay  the  interest  on  the  bonds  issued  by  the  United 
States  in  aid  of  the  company  before  the  maturity  of  the  princi- 
pal of  the  bonds.  The  bonds  were  issued  by  the  United  States 
innler  an  act  of  Congress,3  giving  a  statutory  mortgage  upon  the 
property  of  the  company  for  the  amount  of  bonds  to  be  issued, 
and  providing  that  upon  a  failure  of  said  company  to  redeem  the 
bonds  in  accordance  with  the  terms  of  the  act,  the  secretary  of 
the  treasury  might  take  possession  of  the  property  for  the  use 
anil  benefit  of  the  United  States.  The  act  further  provided  that 
"•  tin-  grants  aforesaid  are  made  upon  condition  that  said  company 
shall  pay  said  bonds  at  maturity;  ....  and  all  compensation 
for  services  rendered  for  tin!  government  shall  be  applied  to  the 

1   R  indolpTi  r.  Middleton,  20  X.  J.  Eq.        -  01  IT.  S.  72. 
5i'!;  S.  C.  Middleton  v.  X.J.  West  Line        s  Act  of  July  1, 1862;  12  Stats,  at  Large, 
R.   K.  Co.  25  X.  J.  Eq.  306.  p.  489. 

71 


§  92.]      FORM   AND   CONSTRUCTION   OF   CORPORATE   MORTGAGES. 

payment  of  said  bonds  and  interest  until  the  whole  amount  is 
fully  paid."  *By  a  subsequent  act,1  it  was  provided  that  "  only 
one  half  of  the  compensation  for  services  rendered  for  the  govern- 
ment shall  be  required  to  be  applied  to  the  payment  of  the  bonds 
issued  by  the  government  in  aid  of  the  construction  of  said  road." 
The  Supreme  Court  of  the  United  States,2  upon  consideration  of 
the  act  and  the  purposes  contemplated  by  it,  held  that  it  was  not 
the  intention  of  Congress  to  require  the  company  to  pay  the  in- 
terest before  the  maturity  of  the  principal  of  the  bonds.  Mr.  Jus- 
tice Davis,  delivering  the  opinion  of  the  court,  said  :  "  If  the  lan- 
guage used  is  taken  in  its  natural  and  obvious  sense,  there  can  be 
no  difficulty  in  arriving  at  the  meaning  of  the  condition  '  to  pay 
said  bonds  at  maturity.'  As  commonly  understood,  the  word  'ma- 
turity,' in  its  application  to  bonds  and  other  similar  instruments, 
refers  to  the  time  fixed  for  their  payment,  which  is  the  termina- 
tion of  the  period  they  have  to  run.  The  bonds  in  question  were 
bonds  of  the  United  States,  promising  to  pay  to  the  holder  of  them 
one  thousand  dollars  thirty  years  after  date,  and  the  interest  every 
six  months.  This  obligation  the  government  was  required  to  per- 
form ;  and,  as  the  bonds  were  issued  and  delivered  to  the  corpora- 
tion to  be  sold  for  the  purpose  of  raising  money  to  construct  its 
road,  it  is  insisted  that  Congress  must  have  meant  to  impose  a  cor- 
responding obligation  on  the  corporation.  In  support  of  this  con- 
struction, it  is  sought  to  give  to  the  word  '  maturity  '  a  double  sig- 
nification, applying  it  to  each  payment  of  interest  as  it  falls  due, 
as  well  as  to  the  principal.  But  this  is  extending,  contrary  to  all 
legal  rules,  the  operation  of  words  by  a  forced  construction  beyond 
their  real  and  ordinary  meaning.  Courts  cannot  supply  omissions 
in  legislation,  nor  afford  relief  because  they  are  supposed  to  exist. 
....  The  words  '  to  pay  said  bonds  at  maturity  '  do  not  bear 
the  sense  which  is  sought  to  be  attributed  to  them.  They  evi- 
dently imply  an  obligation  to  pay  both  principal  and  interest 
when  the  time  fixed  for  the  payment  of  the  principal  has  arrived, 
but  not  to  pay  the  interest  as  it  accrues.  It  is  one  thing  to  be  re- 
quired to  pay  principal  and  interest  when  the  bonds  have  reached 
maturity,  and  a  wholly  different  thing  to  be  required  to  pay  the 
interest  every  six  months,  and  the  principal  at  the  end  of  thirty 
years.      The  obligations  are  so  different  that  they  cannot  both 

1  July  2,  1864  ;  13  Stats,  at  Large,  356.     Co.  91  U.  S.  72.     See,  also,  United  States 

2  United  States  v.  Union  Pacific  R.  R.     v.  Kansas  Pacific  Ry.  Co.  4  Dill.  367. 

72 


VARIOUS  PROVISIONS  OF  CORPORATE  MORTGAGES.  [§§  93,  94. 

grow  out  of  the  words  employed ;  and  it  is  necessary  to  superadd 
other  words,  in  order  to  include  the  payment  of  semi-annual  in- 
terest as  it  falls  due.  Neither  on  principle  nor  authority  is  such 
a  plain  departure  from  the  express  letter  of  the  statute  warranted, 
especially  when  it  leads  to  so  great  change  in  the  condition  an- 
nexed to  the  grant." 

93.  A  mortgage  deed  should  so  fully  and  accurately  de- 
scribe the  bonds  to  be  secured  by  it,  that  their  identity  may  be 
readily  established.  But  any  doubt  or  ambiguity  arising  from  an 
imperfect  or  erroneous  description  may  be  removed  by  parol  evi- 
dence. Thus,  bonds  of  the  Worcester  and  Somerset  Railroad 
Company  of  Maryland,  dated  on  the  first  day  of  October,  were 
held  to  be  embraced  in  a  mortgage  deed  dated  the  twenty-fifth 
day  of  the  same  month,  inasmuch  as  the  bonds  were  in  other  re- 
spects clearly  described  in  the  deed,  and  there  was  nothing  in  the 
terms  of  the  deed  inconsistent  with  the  fact  that  they  had  been 
before  executed,  and  any  uncertainty  that  existed  on  the  subject 
had  been  removed  by  evidence  that  no  other  bonds  were  executed 
or  issued  by  the  company.1 

94.  Power  reserved  in  mortgage  to  dispose  of  property  not 
necessary  for  the  use  of  the  road.  —  A  provision  in  a  mortgage, 
which  by  its  terms  covers  the  present  property  of  a  railroad  com- 
pany, and  its  future  acquisitions,  its  rolling  stock,  materials,  ma- 
chinery, and  all  other  personal  property,  that  the  company  might 
dispose  of,  or  pledge  property  not  used  or  not  necessary  for  the 
road,  provided  it  should  apply  all  the  proceeds  to  the  use  and 
benefit  of  the  road,  does  not  nullify  the  mortgage,  as  to  those  ar- 
ticles, and  withdraw  the  lien  of  the  mortgage  as  fast  as  such  arti- 
cles as  broken  wheels,  rails,  or  ties,  or  the  like,  are  cast  aside. 
The  exercise  of  this  power  is  regarded  as  merely  incidental,  and 
necessary  to  the  possession  and  working  of  the  road.2 

A  provision  that  "  nothing  herein  contained  shall  prevent  the 
said  company,  before  default  in  the  payment  of  any  of  the  said 
bonds,  or  the  interest  due  thereon,  from  selling,  hypothecating,  or 
Otherwise  disposing  of  any  of  their  said  property,  real  or  personal, 
nut  necessary  in  their  judgment  for  the  use  of  the  said  road,  nor 

»  Butler  »•.  Rahm,  46  M<1.  541.  See  1  2Coopers«.  Wolf,  IS  Ohio  St. 523,  Brink- 
Jones  on  Mortgages,  §§  .'!4.')-356.  erhoff,  C.  J.,  and  Scott,  J.,  dissenting. 

73 


§  95.]       FORM   AND   CONSTRUCTION    OF   CORPORATE   MORTGAGES. 

from  collecting  and  applying  any  money  clue  to  the  said  company 
from  any  source  whatever,  provided  said  application  shall  not  be 
to  the  prejudice  of  any  holder  of  any  of  the  said  bonds,"  does  not 
render  the  mortgage  fraudulent  and  invalid.  However  suspicious 
such  a  power  might  be  in  the  case  of  a  mortgage  of  ordinary 
goods,  the  very  nature  of  a  railroad  corporation,  its  business,  the 
wear  and  tear  of  its  iron,  ties,  and  rolling  stock,  the  constant 
necessity  of  replacing  injured  or  worn-out  appurtenances  with 
new,  forbids  the  inference  of  a  fraudulent  purpose.  The  power 
retained  is  in  the  interest  of  the  mortgagees  as  well  as  of  other 
creditors  of  the  company,  and  of  the  company  itself.1 

95.  Reservation  of  power  to  create  a  prior  lien.  — The 
Texas  and  New  Orleans  Railroad  Company,  in  1858,  executed  a 
first  mortgage  of  its  property  with  a  special  reservation,  that  when- 
ever the  company  should  procure  from  the  State  of  Texas  a  loan 
of  six  thousand  dollars  per  mile  out  of  the  school  fund,  and  should 
execute  its  bonds  to  the  state  for  the  same,  they  should  constitute 
a  lien  upon  the  property  mortgaged  prior  and  superior  to  the  lien 
of  the  above  mentioned  mortgage.  This  reservation  was  made 
in  pursuance  of  the  law  of  1856,  which  entitled  the  company  to 
this  school  fund  loan,  and  by  which  it  was  expressly  provided, 
that  the  bonds  given  to  the  state  should  constitute  a  lien  upon  the 
road  and  charter  rights  of  the  company,  including  the  road-bed, 
right  of  way,  and  all  property  owned  by  the  company  as  neces- 
sary for  its  business  ;  and  that  they  should  have  a  priority  over 
all  other  claims  against  the  company.  Early  in  1861  forty  miles 
of  the  road  remained  still  unfinished  and  the  resources  of  the  com- 
pany were  exhausted.  The  school  fund  loan  for  this  portion  of 
the  line,  on  which  the  company  had  relied,  was  essential  to  enable 
it  to  complete  the  work,  but  the  state  could  not  advance  any  more 
school  fund  bonds,  or  at  least  did  not.  In  this  situation  of  affairs 
an  act  was  passed2  entitled  "  An  act  for  the  relief  of  the  Texas 
and  New  Orleans  Railroad  Company,"  by  which  it  was  provided, 
among  other  things,  that  the  company  might  issue  a  first  mortgage 
upon  this  uncompleted  portion  of  its  road  to  the  amount  of  $6,000 
per  mile,  which  should  be  a  prior  lien  to  the  mortgage  of  1868,  pro- 
vided the  company  would  relinquish  all  claims  to  the  state  loan  for 
that  portion  of  the  road.  The  mortgage  was  executed  accordingly. 
1  Butler  v.  Rahm,  46  Md.  541.  2  Act  of  Feb.  7,  1871. 

74 


VARIOUS   PROVISIONS   OF    CORPORATE   MORTGAGES.  [§  95. 

The  question  afterwards  arose  whether  the  mortgage  of  1858  or 
the  mortgage  of  1861  should  have  priority,  the  holders  of  the 
bonds  of  1858  contending  that  although  the  company  might  have 
given  such  a  lien  to  the  state  upon  borrowing  money  of  it,  yet 
that  it  had  relinquished  this  right,  and  therefore  that  these  bonds 
and  the  mortgage  thus  became  the  first  lien  on  the  road  and  its 
appurtenances.  Mr.  Justice  Bradley,  delivering  the  opinion  of  the 
Circuit  Court,  upon  this  point  said  : *  "  This  certainly  could  never 
have  been  the  intention  of  the  parties,  for  it  would  have  been,  on 
the  part  of  the  company,  a  piece  of  the  greatest  fatuity  thus  to 
surrender  this  most  valuable  resource  for  raising  the  means  which 
were  necessary  to  enable  it  to  complete  its  road  and  works.  And 
to  my  mind,  it  is  proved  quite  conclusively,  as  far  as  parol  proof 
and  the  contemporary  acts  of  the  company  and  all  dealing  with  it 
at  that  time  can  go  to  prove  a  matter  of  this  kind,  that  the  Act 
of  February  7,  1871,  was  regarded  and  intended  as  a  permission 
and  authority,  given  by  the  state  to  the  company,  to  substitute 
some  other  lender  in  its  place,  and  to  subrogate  its  right  of  priority 
to  such  substituted  creditor.  The  question  is,  could  this  be  done  ? 
There  seems  to  be  no  doubt  that  the  state  might  have  advanced 
the  loan,  received  the  company's  bonds,  and  assigned  such  bonds 
to  any  other  party,  and  might  thus  have  substituted  another  party 
in  its  stead.  The  state  might  have  proposed  to  A.,  thus:  'Ad- 
vance this  loan  to  the  Texas  and  New  Orleans  Railroad  Company 
for  us,  and  you  shall  have  the  company's  bonds  to  be  received 
therefor.'  No  reasonable  objection  to  such  a  transaction  would 
have  been  made  by  prior  mortgagees  or  bondholders.  If  either 
of  these  things  could  be  done,  why  could  not  the  state,  in  the 
exercise  of  its  legislative  power,  have  substituted  another  party  in 
its  place  as  lender,  and  authorized  a  subrogation  of  all  its  rights 
of  priority  to  such  lender?  No  substantial  rights  of  any  other 
persons  or  parties  would  have  been  thereby  invaded.  Acts  of 
state  legislation  are  to  be  sustained,  if  they  do  not  invade  any 
substantial  and  vested  rights.  If  the  legislature  of  the  state,  by 
the  Ad  of  1861,  did  this,  I  can  see  no  objection  to  the  validity  of 
the  transaction."  Tin- bonds  authorized  by  this  legislation  were 
issued  for  full  value  to  parties  who  received  them  in  good  faith  as 
a   lust    lien    upon    that    portion  of  tin;   road  ;  and   the   Court  held 

1  Campbell  v.  Texas  &  New  Orleans  H.  K.  Co.  2  Woods,  268. 

7  5 


§  96.]       FORM   AND   CONSTRUCTION   OF   CORPORATE   MORTGAGES. 

that  they  were  entitled  to  stand  in  the  place  of  the  state  and 
have  a  first  lien  on  such  road. 

Objection  was  made  that  the  substituted  bonds  varied  from 
those  which  the  state  was  to  give  under  the  reservation  contained 
in  the  first  mortgage,  and  therefore  that  they  could  not  be  sub- 
stituted, even  by  legislative  aid,  without  impairing  the  obligation 
of  the  contract  between  the  company  and  the  bondholders  of  1858. 
One  variance  relied  upon  in  this  way  was,  that  the  substituted 
bonds  were  made  to  run  for  a  longer  time,  —  for  fifteen  years,  in- 
stead of  ten  years.  But  the  court  did  not  regard  this  as  of  the 
essence  of  the  contract.  There  was  no  specific  mention  of  the 
time  of  credit  in  the  reservation  made  in  the  mortgage,  though 
the  statutes  providing  for  the  issue  of  such  bonds  directed  the 
officers  of  the  state  to  allow  them  to  run  for  ten  years.  The  sub- 
stantial circumstance  as  between  the  company  and  the  bondholders 
under  the  mortgage  of  1858  was,  that  the  company  had  the  right 
to  impose  upon  the  road  a  loan  of  $6,000  per  mile  and  make  it  a 
lien  prior  to  the  mortgage  which  secured  their  bonds. 

Another  variance  relied  upon  was,  that  the  substituted  mort- 
gage did  not  require  a  sinking  fund  to  be  reserved  for  the  pay- 
ment of  the  bonds,  as  was  the  case  with  the  bonds  which  were  to 
be  given  to  the  state.  This,  again,  was  not  regarded  as  affecting 
the  substance  of  the  right  as  between  the  parties.  It  was  rather 
a  mode  of  providing  for  payment,  and  the  company  was  neither 
richer  nor  poorer  by  reason  of  the  sinking  fund.  This  was  a  mat- 
ter of  detail  for  the  officers  of  the  state  under  the  act  authorizing 
the  loan,  but  not  a  matter  of  essential  concern  to  the  bondholders. 

But  a  variance  in  the  rate  of  interest,  the  bonds  to  be  given  for 
the  state  loan  bearing  six  per  cent,  interest,  whereas  the  bonds 
authorized  in  their  stead  bore  eight  per  cent,  interest,  imposed  an 
additional  burden  upon  the  road  beyond  what  was  stipulated  for. 
The  rights  of  the  bondholders  under  the  first  mortgage  were  there- 
fore invaded  to  the  extent  of  this  increase  in  the  rate  of  interest, 
and  as  against  them  the  rate  must  be  reduced  to  six  per  cent. 

96.  The  mortgage  usually  provides  in  some  form  for  the 
payment  of  taxes  by  the  mortgagor  while  in  possession.  A  pro- 
vision in  the  condition  of  a  defeasance  of  a  mortgage  given  by  a 
railroad  company  to  secure  its  bonds,  that  the  mortgage  shall  be 
void  if  the  mortgagor  well  and  truly  pays  the  debt  and  interest 
76 


VARIOUS   PROVISIONS   OF   CORPORATE    MORTGAGES.         [§  97. 

"  without  any  deduction,  defalcation,  or  abatement  to  be  made  of 
anything  for  or  in  respect  of  any  taxes,  charges,  or  assessments 
whatsoever,"  does  not  oblige  the  company  to  pay  an  income  tax 
of  five  per  cent,  imposed  by  act  of  Congress  upon  the  interest 
payable  upon  the  bonds,  and  which  such  companies  "  are  author- 
ized to  deduct  and  withhold  from  the  payments  on  account  of 
any  interest  or  coupons  due  and  payable."  On  the  contrary,  the 
company  complies  with  its  contract  when  it  pays  the  interest,  less 
five  per  cent.,  and  retains  the  tax  for  the  government.  The  pro- 
vision  has  reference  only  to  ordinary  taxes  imposed  upon  the 
company  and  the  property  in  its  possession.1 

97.  A  provision  in  the  bonds  of  a  corporation  for  their 
conversion  into  the  capital  stock  of  the  company  at  the 
pleasure  of  the  holder  is  inseparably  connected  with  the 
bonds  themselves,  and  can  be  availed  of  only  by  a  holder  of  such 
bonds,  and  only  so  long  as  he  continues  to  hold  them.  He  cannot 
assign  this  right  of  conversion,  or  his  right  of  action  for  a  breach 
of  the  stipulation  for  conversion,  separate  from  the  bonds.  To 
recover  in  an  action  against  the  company  for  its  refusal  to  convert 
the  bonds,  the  plaintiff  must  aver  and  prove  that  he  was  at  the 
commencement  of  his  action  the  holder  of  the  bonds  for  the  con- 
version of  which  he  brought  suit.2 

A  privilege  given  in  bonds  issued  by  a  company  that  the  holders 
may  convert  them,  at  their  option,  within  a  specified  time,  into 
stock  of  the  company,  cannot  be  so  exercised  that  a  bondholder 
shall  receive  interest  on  his  bonds  and  interest  or  dividends  on  the 
stock  for  the  same  period.  Neither  is  he  entitled  to  new  stock 
issued  to  stockholders  in  place  of  dividends  before  he  exercises 
his  option  to  convert  his  bonds.3  He  is  entitled  merely  to  stock, 
and  not  to  stock  with  dividends  or  interest  thereon.  If  that  were 
his  right,  the  longer  he  delayed  his  election  the  more  he  would 
receive. 

Under  a  statute  authorizing  railroad  corporations  to  borrow 
money  for  certain  purposes  and  to  issue  bonds  secured  by  mort- 
gages  of    the   corporate  franchises  and   property,   and  providing 

I  Haight».  Railroad  Co.  6  Wall.  15;  S.         -  Denny  v.  Cleveland  &  Pittsburg  II. 
C.  l  Abbott  C.  &  D.  Ct.  K.  81.     See  1     It.  Co.  28  Ohio  St.  108. 
Jones  on  Mortgages,  §  358.  ::  Sutliff  v.   Cleveland  &  Mahoning  K. 

11.  (Jo.  24  Ohio  St.  147. 
77 


§  98.]       FORM    AND    CONSTRUCTION    OF   CORPORATE   MORTGAGES. 

that  the  "  directors  may  confer  on  any  holder  of  such  bonds  the 
right  to  convert  the  principal  due  or  owing  thereon  into  stock, 
under  such  regulations  as  the  directors  may  see  fit  to  adopt,"  it 
was  hold  in  Belmont  v.  Erie  Railway  Company  that  the  directors 
of  this  corporation  had  the  power  to  issue  such  convertible  bonds, 
although  the  limit  of  the  amount  of  capital  stock  fixed  by  its  char- 
ter had  already  been  reached,  there  being  no  condition  imposed 
upon  the  right  of  the  directors  to  authorize  the  conversion  of  such 
bonds  into  stock,  except  that  the  bonds  be  issued  for  the  purposes 
specifically  authorized  ;  and  this  being  so,  it  was  further  held  that 
the  directors  had  power  to  issue  stock  in  conversion  of  such  bonds.1 
It  was  declared,  however,  that  if  the  court  were  satisfied  that 
bonds  were  about  to  be  issued  by  the  directors,  not  for  the  pay- 
ment of  money  actually  borrowed  for  the  purposes  authorized  by 
the  statutes  but  as  a  part  of  a  fraudulent  device  to  increase  the 
stock,  the  issuing  of  them  might  be  restrained  by  injunction ; 
and  moreover,  that  while  the  bonds  remained  in  the  hands  of 
any  persons  affected  with  notice  that  they  did  not  represent  a 
bond  fide  indebtedness,  but  were  issued  with  such  fraudulent 
design,  the  issuing  of  stock  in  conversion  of  the  bonds  might 
also  be  enjoined.2 

This  decision,  that  a  corporation  may,  through  the  instrumen- 
tality of  convertible  bonds,  issue  stock  after  it  has  already 
reached  the  limit  of  its  powers  of  issuing  it,  is  of  doubtful  au- 
thority ;  but  it  illustrates  one  phase  of  the  management  of  a 
great  corporation,  so  much  of  whose  history  has  been  one  of  fraud 
and  disaster  from  the  beginning,  reflecting  no  honor  upon  the 
great  state  whose  courts  have  had  so  much  to  do  in  making  up 
the  humiliating  record.3 

98.  A  mortgage  deed  may  be  reformed.  —  A  mortgage  to 
trustees  for  bondholders,  from  which  words  of  inheritance  have 
been  inadvertently  omitted,  will  be  reformed  as  against  subse- 
quent incumbrancers  and  purchasers,  when  it  appears  from  the 
deed  itself,  as  recorded,  that  the  nature  of  the  trust  recpuired  that 
an  estate  in  fee  should  pass  by  the  deed.  The  New  Jersey  West 
Line  Railroad  Company  made  such  a  mortgage,  and  constructive 

1  Belmont  v.   Erie  Ry.   Co.    52   Barb.  2  Belmont   v.  Erie  Ry.  Co.  supra,  per 

(N.  Y.)  637  ;  on.!  see  Kamsey  v.  Erie  Ry.  Cardozo,  J. 

Co.  38  How.  Pr.  (N.  Y.)  193,  217.  8  See  "Chapters   of  Erie,"  by  Charles 

78  F  Adams,  Jr. 


VARIOUS   PROVISIONS   OF   CORPORATE   MORTGAGES.  [§  98. 

notice  of  the  entire  instrument  was  afforded  by  the  record  of  it.1 
"  It  was  a  conveyance,  by  way  of  mortgage,  in  trust,  and  the 
estate  intended  to  be  conveyed  to  the  trustees  may  be  ascertained 
from  the  provisions  of  the  trust  itself.  If  they  require  for  their 
execution  that  the  trustees  shall  have  an  estate  in  fee,  then  an 
estate  in  fee  will  be  held  to  have  passed  to  them.  The  morto-ao-e 
provides  that,  in  case  of  default  for  the  period  of  six  months  after 
presentation  of  coupons  for  interest  and  demand  of  payment,  or 
default  for  six  months  in  payment  of  principal,  the  trustees,  or 
the  survivors  of  them,  or  their  successors,  may  sell  and  dispose  of 
the  mortgaged  premises,  and  make  and  deliver  to  the  purchaser  or 
purchasers  thereof  good  and  sufficient  deed  and  deeds  in  the  law, 
in  fee  simple,  therefor  ;  and  that  the  sale  and  conveyance  so  made 
shall  be  a  perpetual  bar,  both  in  law  and  in  equity,  against  the 
company,  and  all  claiming  or  to  claim  the  property  under  it,  or  its 
successors  or  assigns  ;  and  that  the  sale  shall  vest  the  right,  title, 
estate,  interest,  property,  and  possession  of,  in,  and  to  the  premises, 
wholly  and  absolutely  in  the  purchaser  or  purchasers.  To  exe- 
cute this  provision  of  the  mortgage  a  fee  in  the  trustees  is  neces- 
sary, for  they  could  not  convey  a  fee  if  they  themselves  had  only 
a  less  estate.  This  provision  is  of  itself  evidence  and  notice  of 
the  estate  intended  to  be  conveyed  by  the  mortgage,  that  it  was 
an  estate  in  fee.  The  mortgage,  therefore,  may  be  reformed,  as 
prayed  in  the  bill,  in  the  words  of  conveyance  and  in  the  haben- 
dum clause,  as  against  all  the  defendants." 

1  Randolph  v.  N.  J.  West  Line  R.  R.  common  as  aforesaid,  to  the  only  proper 

Co.  28  N.  J.  Eq.  49.  use,  benefit,  and  behoof  of  the  trustees,  and 

The  habendum  of  the  mortgage  was  to  the  survivor  of  them,  and  tlieir  successors 

the   trustees,  as  joint-tenants,  and    not  as  and  assigns,  as  joint-tenants,  and  not  as 

tenants  in  common,  and  to  the  survivors  tenants  in  common  as  aforesaid,  forever 

of  them,  and  tlieir  successors  and  assigns,  in  tiust  nevertheless,  &c.     See  1  Jones  on 

as  joint-tenants,  and   not   as   teuants   in  Mortgages,  §§  97-99. 

79 


CHAPTER  III. 


PROPERTY    COVERED    BY    RAILROAD    MORTGAGES. 


I.  What  is  embraced  in  a  mortgage  of  the 
undertaking,  99-103. 

II.  What  property  passes  as  appurtenant 
to  the  franchise,  104-108. 


III.  What  personal  property  passes  as  fixt- 
ures, or  parts  of  the  realty,  109-113. 

IV.  What  is  covered  by  a  mortgage  of  the 
tolls  and  income  of  a  railroad,  114— 
120. 


I.    What  is  embraced  in  a  Mortgage  of  the  Undertaking . 

99.  In  England  a  railway  mortgage  usually  embraces  only 
the  "  undertaking  "  of  the  company,  and  the  tolls  and  moneys 
arising  out  of  the  "  undertaking."  This  is  different  from  a  mort- 
gage of  the  property  of  the  company.1  By  the  term  "  undertak- 
ing "  is  meant  the  railway  as  a  completed  whole  by  which  tolls 
and  profits  are  earned.  Various  ingredients  go  to  make  up  the 
undertaking,  but  these  ingredients,  strictly  speaking,  are  not  the 
subjects  of  the  mortgage,  but  only  the  completed  work  from  which 
the  earnings  come.  The  term  undertaking  is  the  proper  style,  not 
for  the  ingredients,  but  for  the  completed  work.  "  It  is  in  this 
sense,  in  my  opinion,"  said  Lord  Cairns,2  "that  the  '  undertaking' 
is  made  the  subject  of  a  mortgage.  Whatever  may  be  the  liability 
to  which  any  of  the  property  or  effects  connected  with  it  may  be 
subjected  through  the  legal  operation  and  consequences  of  a  judg- 
ment recovered  against  it,  the  undertaking,  so  far  as  these  con- 
tracts of  mortgage  are  concerned,  is,  in  my  opinion,  made  over 
as  a  thing  complete,  or  to  be  completed,  as  a  going  concern,  with 
internal  and  parliamentary  powers  of  management  not  to  be  in- 
terfered with, — as  a  fruit-bearing  tree,  the  produce  of  which  is 
the  fund  dedicated  by  the  contract  to  secure  and  to  pay  the  debt. 
The  living  and  going  concern  thus  created  by  the  legislature  must 
not,  under  a  contract  pledging  it  as  security,  be  destroyed,  broken 

1  Perkins^  v.  Pritchard,  3  Railw.  &  Ca-         2  Gardner  v.  London,  Chatham  &  Do- 

nal  Cases,  95;  Hart  v.  Eastern  Union  Ry.  ver  R.  Co.  L.  R.  2  Ch.  App.  201,  217  ;    36 

Co.  6  lb.  818 ;  S.  C.  7  Exch.  265.  L.  J.  Ch.  323. 
80 


OF    THE   UNDERTAKING.  [§  99. 

up,  or  annihilated.  The  tolls  and  sums  of  money  ejusdem  generis 
—  that  is  to  say,  the  earnings  of  the  undertaking —  must  be  made 
available  to  satisfy  the  mortgage  ;  but,  in  my  opinion,  the  mort- 
gagees cannot,  under  their  mortgages,  or  as  mortgagees,  by  seizing 
or  calling  on  this  court  to  seize  the  capital  or  the  lands,  or  the 
proceeds  of  sales  of  land,  or  the  stock  of  the  undertaking,  either 
prevent  its  completion  »r  reduce  it  into  its  original  elements  when 
it  has  been  completed." 

The  London,  Chatham,  and  Dover  Railway  Company,  having 
made  a  mortgage  of  its  undertaking  and  the  tolls  and  profits  aris- 
ing from  that,  a  question  arose  upon  default  in  the  payment  of 
the  money  received,  whether  a  receiver  should  be  appointed  of  the 
rents,  and  of  the  sale  proceeds  of  certain  surplus  lands.  Such 
lands  in  England  may  be  acquired  in  one  of  two  ways  :  they  may 
be  lands  taken  by  the  railway  company  in  the  belief  that  they 
would  be  required  for  its  line,  or  for  the  stations  and  works  con- 
nected with  it ;  or  they  may  be  lands  which  the  owner  has  forced 
the  company  to  buy,  in  order  that  he  may  not  have  a  severed 
part  of  a  tenement  or  field  left  on  his  hands.  In  either  case 
the  company  is  obliged  to  resell  the  land  within  a  limited  time, 
applying  the  proceeds  to  the  purposes  of  the  company.  "  It  is 
obvious  from  this,"  said  Lord  Justice  Cairns,  delivering  the  de- 
cision of  the  court,1  "  that  the  surplus  land  is  in  truth  the  rep- 
resentative and  equivalent  of  a  certain  portion  of  the  capital 
provided  by  the  company  for  the  execution  of  their  works,  which 
has  —  not  for  the  purpose  of  profit,  but  for  the  protection  of  land- 
owners—  been  temporarily  diverted  and  invested  in  land  to  be 
again  resold,  and  which  is  to  return  to  the  capital  of  the  com- 
pany when  the  object  for  which  it  has  been  diverted  has  been 
accomplished.  And  as  regards  the  interim  rents,  if  any,  of  sur- 
plus lands,  they  would  appear  to  be  in  the  same  position  as  the 
income  arising  from  capital  provided  by  the  company,  and  tempo- 
rarily invested  in  any  other  manner  until  needed.  The  argument 
by  which  the  debenture  holders  maintain  their  right  to  a  receiver 
of  the  proceeds  of  the  surplus  lands  is  in  substance  this:  They  say 
they  are  mortgagees  of  the  undertaking,  and  of  the  tolls  and  sums 
of  money  arising  out  of  it,  or  by  virtue  of  the  art  authorizing  it.  ; 
that  all  the  land  taken  by  the  company  under  its  parliamentary 
powers  goes,  in  the  first  instance,  to  form  a  part  of  the  under  tak- 

1  Gardner  v.  London,  Chatham  &  Dover  By.  Co.  supra. 

G  81 


§  99.]  PROPERTY    COVERED    BY   RAILROAD    MORTGAGES 

ing  ;  that  as  soon  as  any  land  becomes  surplus  land,  it  becomes 
subject  at  the  same  time  to  the  parliamentary  provision  for  its 
resale,  but  the  sale  moneys  are  in  return  subjected  to  this  trust; 
that  they  are  to  be  applied  for  the  purposes  of  the  special  act, 
that  is,  for  the  purposes  of  the  undertaking ;  that  these  moneys, 
therefore,  become  and  form  a  part  of  the  undertaking,  and  there- 
fore of  the  security,  and  ought  to  be  preserved  and  applied  for 
them  by  this  court.  It  is  necessary  to  observe  carefully  to  what 
length  this  argument  must  go.  A  railway  is  made  and  main- 
tained by  means  of  its  capital,  by  means  of  its  borrowed  money, 
of  its  land,  of  its  proceeds  of  sale  of  surplus  land,  of  its  perma- 
nent way,  of  its  rolling  stock.  All  these  maj^  be  said,  in  a  sense, 
to  be  connected  with,  to  be  parts  of,  to  make  up,  the  undertaking. 
If  a  mortgage  of  the  undertaking  carries  in  specie  the  sale  mon- 
eys of  surplus  lands,  it  must  equally,  and  on  the  same  principle, 
carry  in  specie  the  ordinary  land  of  the  company,  the  capital,  the 
permanent  way,  the  rolling  stock,  na}r,  even  the  very  money  itself 
lent  on  the  mortgage.  The  assignment  made  by  the  mortgage 
debenture  is  immediate,  and  is  to  continue  for  three  years  at  the 
least.  If  the  debenture  holders  are  right  in  their  argument,  they 
become  immediate  assignees  in  specie  of  all  the  ingredients  which 
I  have  enumerated  as  going  to  make  up  the  undertaking,  and 
they  might  from  the  first  have  asserted  their  rights  as  mortgagees 
by  taking  and  impounding,  not  merely  the  proceeds  of  surplus 
lands,  but  the  capital,  the  cash  balances,  the  rolling  stock,  and 
even  their  own  money  advanced.  Now,  it  is  beyond  question 
that  the  great  object  which  parliament  has  in  view,  when  it  grants 
to  a  railway  company  its  compulsory  and  extraordinary  powers 
over  private  property,  is  to  secure  in  return  to  the  public  the 
making  and  maintaining  of  a  great  and  complete  means  of  public 
communication  ;  and  yet,  according  to  the  necessary  consequence 
of  the  plaintiffs'  argument,  the  moment  the  company  borrowed 
money  on  debentures  it  would  depend  on  the  will  or  caprice  of 
the  debenture  holder  whether  the  railway  was  made  at  all."  In 
conclusion,  it  was  held  that  the  debentures  did  not  constitute  a 
mortgage  of  the  whole  of  the  property  and  effects  of  the  com- 
pany, as  parts  of  the  undertaking ;  and  therefore  that  the  sale 
moneys  of  the  surplus  lands  were  not  embraced  in  the  mortgage. 
The  company  having  given  a  charge  upon  these  lands  to  contract- 
8-2 


OF   THE   UNDERTAKING.  [§  100. 

ors  to  the  railway,  a  receiver  was  appointed  of  the  proceeds  of 
the  sale  of  them  in  favor  of  the  assignees  of  the  contractors. 

100.  The  word  "  undertaking,"  having  no  settled  mean- 
ing, must  be  construed  with  reference  to  the  obvious  inten- 
tion of  those  who  employ  it.  While  the  word  does  not,  primd 
facie,  include  the  lands  of  the  company,  it  does  not  necessarily  ex- 
clude them.  As  declared  by  Mr.  Justice  Coleridge,1  "  That  word 
is  ambiguous,  and  may  be  construed  as  meaning  the  speculation 
generally,  or  possibly  it  may  be  taken  to  include  the  land  itself." 
This  point  is  further  illustrated  by  the  case  of  the  New  Bruns- 
wick and  Canada  Railway  Company.  By  various  acts  of  the 
imperial  and  colonial  legislatures,  this  company  was  entitled  to 
grants  of  a  large  amount  of  land  not  connected  with  or  necessary 
for  the  completion  of  the  railway.  This  land  the  company  had 
taken  as  a  land  company,  with  the  object  of  making  it  a  source 
of  profit  by  sale  and  otherwise.  It  issued  debentures,  mortgaging 
to  each  holder  the  undertaking,  and  all  moneys  to  arise  from  the 
sale  of  lands,  and  all  future  calls,  and  all  tolls,  engines,  rolling- 
stock,  and  all  the  estate,  right,  title,  and  interest  of  the  company 
in  the  same,  provided,  that  nothing  therein  contained  should  be 
held  to  limit  the  power  of  sale  or  appropriation  by  the  company 
of  any  of  its  lands,  nor  constitute  a  charge  upon  them.  Certain 
judgment  creditors  of  the  company  issued  execution  against  the 
land  of  the  company,  whereupon  the  debenture  holders,  in  order 
to  protect  the  lands  of  the  company,  and  restrain  a  sale  of  the 
lands  by  the  judgment  creditors,  instituted  a  suit  in  the  Supreme 
Court  of  New  Brunswick,  and  obtained  an  order  appointing  a  re- 
ceiver. A  motion  for  an  injunction  having  been  refused  by  one 
of  the  judges,  and  upon  appeal,  again  refused  by  the  Supreme 
Court  of  Judicature  of  the  province,  an  appeal  was  taken  to  the 
Privy  Council,  which  affirmed  the  decree  of  the  provincial  court.2 
Lord  Chelmsford,  delivering  the  opinion,  said  that  the  proviso 
was  not  inconsistent  with  the  sweeping  and  general  terms  of  the 
debenture,  but  merely  explanatory  of  them.  "It  semis  clear  to 
their  Lordships  that  the  lands  not  being  in  terms  granted  by  the 
mortgage  debentures,  the  proviso  makes  the  intention  of  the  par- 

i  Myatt  v.  Si.  Helen'a  &  Runcorn  Gap        -  Wickham  v.  New  Brunswick  &  Can 

Ry.  Cn.  -i  Q.  B.  864.  '«'li'   1{y-  <'<>•  I-   !>'■   '    !'■  C.    64j   1   Cox's 

Joint  Siock  Cas.  519. 

83 


§  101.]  PROPERTY    COVERED   BY   RAILROAD   MORTGAGES 

ties  perfectly  clear,  that  no  general  expression  used  in  the  grant 
was  intended  to  comprehend  them,  and  therefore  that  the  debent- 
ure holders  are  not  entitled  to  interfere  with  the  sale  of  the  lands 
under  the  execution  issued  by  the  judgment  creditors.  But  the 
debenture  holders  insist,  that,  if  they  cannot  stop  the  sale  of  the 
lands,  they  are  entitled,  under  the  terms  of  the  debentures,  to  all 
the  moneys  arising  from  such  sale.  It  is  quite  clear,  however, 
that  the  sales  contemplated  by  the  grant  are  those  which  are  to 
be  made  by  the  company  in  the  course  of  their  regular  operations. 
The  judgment  creditors  take  what  belonged  to  the  company,  but 
do  not  take  under  them  ;  and  a  sale  by  the  sheriff  under  an  ex- 
ecution is  a  sale  by  law,  and  not  by  the  company.  It  is  clear, 
upon  the  whole  case,  that  the  lands  of  the  company  did  not  pass 
to  the  mortgagees  under  the  debentures,  nor  are  they  entitled  to 
the  proceeds  of  the  forced  sales." 

101.  The  word  undertaking  is  frequently  used  in  connec- 
tion with  other  general  words,  and  the  effect  of  that  word,  and 
of  the  others  as  well,  is  to  be  determined  in  some  measure  by  the 
connection  ;  and  especially  is  this  the  case  in  reference  to  the 
question  whether  the  charge  is  upon  the  income  merely,  or  as  well 
upon  the  property.  A  mortgage  of  "  the  undertaking  and  all  the 
real  and  personal  estate  "  was  held  to  include  all  the  personal 
estate  then  existing,  but  not  personalty  subsequently  acquired.1 
A  company  whose  business  was  to  buy  and  sell  land,  to  build, 
buy,  and  sell  houses,  to  furnish  houses  for  hotels,  and  to  carry  on 
the  business  of  hotel-keepers,  pledged  "  the  property  belonging  to 
us  for  the  time  being,  during  the  subsistence  of  the  debenture, 
with  all  the  buildings  and  stock  on,  and  connected  with,  our  said 
property,  and  all  the  receipts  and  revenues  to  arise  therefrom," 
and  declared  that  the  entire  debenture  loan  and  interest  should  be 
a  first  chai'ge  on  "our  undertaking,  and  property,  and  receipts, 
and  revenues  aforesaid."  Upon  the  winding  up  of  the  company, 
it  was  held  that  the  effect  of  the  debentures  was  to  give  the  hold- 
ers a  charge,  in  priority  to  other  creditors,  upon  the  land  and 
other  property  of  the  company.2 

Whether  the  term  undertaking  constitutes  a  charge  upon  the 

1  New  Clydock  Sheet  &  Bar  Iron  Co.  2  Marine  Mansion  Co.  in  re,  L.  It.  4  Eq. 
in  re,  L.  It.  6  Eq.  514.  601.     See,  also,  General  South  American 

Co.  in  re,  2  Ch.  D.  337. 

84 


OF   THE   UNDERTAKING.  [§  102. 

income  merely,  or  as  well  upon  the  property  itself,  depends  very 
much  upon  the  purpose  of  the  corporation  and  the  nature  of  the 
property  involved.  When  the  property  consists  of  a  permanent 
railway,  all  parts  of  which  are  essential  to  the  continued  existence 
and  operation  of  the  company,  whose  charter  was  granted  for  the 
purpose  of  securing  the  public  convenience,  it  is  not  consistent 
with  the  policy  of  the  English  law  to  allow  the  property  itself 
to  be  mortgaged,  sold,  or  dealt  with  in  any  way,  so  as  to  endan- 
ger the  permanent  maintenance  of  the  railway  ;  and,  therefore,  a 
mortgage  of  the  undertaking  is  construed,  with  reference  to  the 
peculiar  subject  matter  to  be  affected,  to  mean  the  income  of  the 
property  and  not  the  corpus  of  it.1 

102.  The  mortgage  debenture  in  common  use  in  England 
is  not  accompanied  by  any  separate  instrument,  such  as  a  bond 
or  note,  affording  a  personal  remedy  against  the  corporation  ;  but 
the  mortgage  itself  usually  contains  a  covenant  for  the  payment 
of  the  principal  of  the  loan.  Such  a  debenture  in  the  usual  form 
was  made  by  the  Eastern  Union  Railway  Company,  by  which  it 
assigned  "  the  said  undertaking,  and  all  the  estate,  right,  title, 
and  interest  of  the  company  in  the  same,  to  hold  until  the  sum  of 
£1,000,  together  with  interest  for  the  same  at  the  rate  of  X5  for 
every  .£100  by  the  year,  be  satisfied;  the  principal  sum  to  be 
paid  on  the  1st  day  of  January,  1851."  The  question  arose 
whether  this  instrument  afforded  a  personal  remedy  against  the 
company.  Baron  Parke,  delivering  the  opinion  of  the  Court  of 
Exchequer,  holding  that  an  action  was  maintainable  upon  it,2  said 
of  this  instrument :  "  The  first  part  merely  assigns,  in  considera- 
tion of  £  1,000,  the  undertaking,  and  all  the  tolls  and  sums  of 
money  arising  by  virtue  of  the  act,  to  hold  until  the  sum  of 
X  1,000,  with  £5  per  cent,  interest  per  annum,  should  be  satisfied. 
If  the  instrument  had  stopped  there,  it  would  have  operated  sim- 
ply as  a  transfer  (commonly,  but  improperly,  called  a  mortgage) 
of  the  subject  matter  till  the  sum  was  satisfied  thereout.  The 
subject  conveyed  would  be  the  tolls,  certainly  the  unpaid  calls, 
and  all  that  belonged  to  the  company  as  the  proprietors  of  the 
railway,  which  any  oik;  is  at  liberty  to  use  on  paying  tolls,  but 
not  the  stock  or  property  belonging  to  the  company  as  common 

«  Sec  L.   K.  5   Ch.  321,  per  Gilford,        -  Bart  v.  Eastern  Union  Ry.  Co.  6  Railw. 

L  J  &  Canal  ( 'a,.  818  ;  S.  <  '■  1  Exch.  246,  268. 

85 


§  10o.]  PROPERTY    COVERED    BY    RAILROAD   MORTGAGES. 

carriers  of  passengers  or  goods  for  hire,  nor,  according  to  the  case 
of  Myati  v.  St.  Helen's?  the  soil  of  the  railway  itself.  The  rail- 
way acts  have  been  prepared  on  the  model  of  the  canal  acts,  in 
which  the  principal  object  of  the  company  is  the  proprietorship  of 
the  canal,  and  the  profit  there  arises  from  the  use  of  it  by  the 
public  in  general  ;  but  soon  after  the  establishment  of  railways, 
it  was  found  that  the  companies  alone  could  use  them  beneficially, 
by  themselves  monopolizing  the  conveyance  upon  tbem  ;  so  that 
the  theory  of  these  acts  and  the  practice  under  them  are  entirely 
at  variance.  So  far,  the  instrument  we  are  considering  would  give 
no  right  of  action  to  the  plaintiffs,  and  would  resemble  Pontc.t  v. 
Basingstoke  Canal  Company  ;2  but  in  the  conclusion  there  is  a 
stipulation  that  the  principal  is  to  be  paid  on  the  1st  of  January, 
1851  ;  and  this  certainly  imports  a  covenant  by  the  company  that 
the  same  shall  be  repaid,  unless  there  be  something  in  the  acts 
to  qualify  or  alter  the  meaning  of  that  expression.  The  effect, 
then,  of  the  instrument  would  be  to  pledge  the  tolls  and  property 
of  the  company  as  proprietors,  but  not  their  stock  or  property  as 
carriers  ;  and  to  impose  an  obligation  on  them  to  repay  the  prin- 
cipal on  a  certain  day,  for  the  breach  of  which  an  action  would  lie. 
against  the  company,  the  judgment  in  which  action  would  be  sat- 
isfied out  of  their  general  property  not  comprised  in  the  pledge, 
belonging  to  them  as  carriers  or  otherwise."  A  writ  of  error  hav- 
ing been  brought  on  this  judgment,  it  was  affirmed.3 

103.  In  England  future  calls  on  the  shareholders  cannot 
be  mortgaged  without  express  legislative  authority,  so  as  to 
preclude  the  company  from  receiving  and  applying  them  to  the 
purposes  of  the  company.4  Existing  unpaid  calls,  even,  will  not 
be  included  in  a  mortgage,  unless  there  are  clear  words  showing 
an  intention  to  include  them  ;  thus,  where  the  terms  employed 
were,  "  all  the  lands,  tenements,  and  estates  of  the  company,  and 
all  their  undertaking,"  it  was  held  that  calls,  whether  to  be  made 
or  whether  made  and  remaining  unpaid,  were  not  included.5 

i  2  Q.  B.  364.  Brook   Coal   Co.  in  re,  L.  R.  10  Eq.  381  ; 

2  3  Bing.  N.  C.  433.  Companies    Clauses    Consolidation    Act, 

3  Eastern  Union  Ry.  Co.  v.  Hart,  8  1845,  8  &  9  Vict.  c.  16,  §  43  ;  Gardner  v. 
Exch.  116.  London,  Chatham  &  Dover  Ry.  Co.,  per 

4  British  Provident   Life  &   Fire  Ass.  Cairns,  L.  J.  L.  R.  2  Ch.  201,  215. 
Co.  in  re,  4   De  G.,  J.  &  S.  407;  Sankey  5  King  v.  Marshall,  33  Beav.  565. 

86 


WHAT    PASSES    AS    APPURTENANT    TO    THE   FRANCHISE.         [§  104. 

II.    What  Property  passes  as  appurtenant  to  the  Franchise. 

104.  Under  a  mortgage  of  a  road,  "  with  its  corporate  priv- 
ileges and  appurtenances,"  only  such  property  passes  as  is 
directly  appurtenant  to  the  road  and  is  indispensably  necessary 
to  the  enjoyment  of  its  franchises.  Therefore  such  a  mortgage 
does  not  cover  town  lots  adjoining  the  road-bed,  without  specific 
mention  of  the  lots,  although  purchased  by  the  company  ostensi- 
bly for  a  basin  to  connect  the  road  with  river  navigation,  unless 
as  a  matter  of  fact  such  lots  are  essential  to  the  enjoyment  of  the 
corporate  franchises.1  Upon  the  relation  of  such  property  to  the 
road,  Mr.  Justice  Agnew  said  :  "  So  far  as  the  railroad  was  in- 
volved, its  purposes  were  of  a  public  nature,  —  the  transportation 
of  freight  and  passengers  ;  but  so  far  as  the  company  prosecuted 
the  coal  trade,  it  was  an  object  of  private  gain,  not  essential  to 
the  railroad  franchise,  and  which  they  might  or  might  not  prose- 
cute at  pleasure.  Now,  admitting  that  the  company  might,  by 
implication  from  the  language  of  the  charter,  establish  a  basin,  as 
a  device  for  the  more  convenient  carrying  on  of  the  coal  trade, 
yet  it  was  a  work  not  essential  to  the  railroad  franchise  involving 
the  public  interests,  and  therefore  one  the  company  might  estab- 
lish or  withdraw  at  their  pleasure.  A  basin  may  be  very  conven- 
ient to  enable  boats  to  approach  a  railroad  and  take  freight  from 
its  cars  ;  but  clearly  it  does  not  belong  to  it,  constitutes  no  essen- 
tial incident,  and,  therefore,  like  warehouses,  coal-yards,  machine- 
shops,  &c,  is  an  independent  structure." 

A  mortgage  of  all  the  franchises,  lands,  and  appointments  of 
the  main  line  of  a  railroad,  then  owned  by  the  company  or  there- 
after to  be  acquired,  does  not  include  a  lateral  branch,  or  exten- 
sion subsequently  made2 

A  mortgage  of  the  main  line  of  a  railroad  and  its  appurte- 
nances, located  in  the  State  of  Arkansas,  does  not  cover  real  es- 
tate, depot  buildings,  and  track  ways,  situated  in  Tennessee,  across 
the  state  line  from  the  terminal  point  of  the  main  railroad  line; 
but  such  property  is  subject  to  attachment  in  the  courts  of  the  lat- 
ter Btate.8 

i  Sbamokin  Valley  It.  It.  Co.  v.  Liver-  n  Back  v.  Memphis  &  Little  Rock  It.  It. 
more,  47  Pa.  St.  165.  Co.  4  C.  L.  J.  430.     See  §  162. 

-  Randolph  v.  N.  J.  West  Line  It.  It. 
c».  28  N.  ■(.  Eq.  4'J. 

si 


§§  105,  106.]       PROPERTY    COVERED   BY   RAILROAD   MORTGAGES. 

105.  Change  of  route.  —  A  mortgage  conveying  the  franchise 
of  a  railroad  company  and  all  property  to  be  acquired,  covers  the 
road  as  built,  although  a  change  be  made  in  the  route  from  that 
originally  contemplated  and  described  in  the  mortgage.  The 
purchasers  at  a  foreclosure  sale  under  such  mortgage  acquire  all 
the  title  to  the  road  that  the  bondholders  had  a  right  to  have 
sold  ;  or,  in  other  words,  title  to  the  road  as  constructed.1 

In  Iowa,  it  is  provided  that  upon  a  change  of  location  or  re- 
moval of  the  line  of  road,  all  mortgage  liens  and  other  incum- 
brances on  the  line  of  road  which  the  company  is  authorized  by 
the  court  to  change  shall  remain  valid  liens  and  incumbrances  on 
the  line  of  road  to  which  the  change  is  made,  and  shall  take 
priority  of  all  other  liens  and  incumbrances  upon  such  new  line  of 
road.2 

It  is  also  provided  in  Ohio  that  when  any  railroad  company 
shall,  with  the  written  consent  of  three  fourths  in  interest  of  the 
stockholders,  change  its  line  or  any  part  of  it,  either  partly  or 
wholly  constructed,  or  the  proposed  termini,  and  shall  file  a  copy 
of  the  resolution  with  the  secretary  of  state,  the  record  of  any 
mortgage  the  company  may  have  executed  to  secure  bonds  for  the 
construction  of  such  a  road,  in  each  county  through  which  the 
changed  line  of  such  railroad  shall  pass,  is  as  effectual  to  create 
a  lien  upon  the  changed  line  of  such  railroad  and  upon  all  the 
property  of  such  company  as  if  such  mortgage  contained  a  com- 
plete description  of  such  changed  line  and  of  such  property.3 

106.  "Woodland  not  connected  with  the  road.  —  The  Racine 
and  Mississippi  Railroad  Company  made  a  mortgage  of  its  road 
and  superstructure,  track,  and  all  appurtenances,  made  or  to  be 
made,  the  land  upon  which  the  road  had  been  or  should  be  con- 
structed, including  the  depots,  shops,  engine-houses,  and  other 
constructions  at  the  termini  and  along  the  line  of  the  road,  and 
the  land  upon  which  the  same  were  erected,  and  that  which  should 
be  used  for  depot  and  station  purposes.  The  company  afterwards 
purchased  a  large  tract  of  woodland,  situated  seven  miles  from 
the  road,  for  the  purpose  of  supplying  it  with  timber  and  fuel. 
Upon  a  foreclosure  of  the  mortgage  it  was  insisted  that  this  tract 
of  land  was  embraced  in  the  mortgage ;  but  the  Supreme  Court 

1  Elwell  v.  Grand  St.  &  Newtown  R.  R.         2  Laws  1876J  ch.  118,  §  5. 
Co.  67  Barb.  83.  3  Laws  1876,  ch.  115. 


WHAT    PASSES   AS   APPURTENANT   TO   THE   FRANCHISE.    [§§  107,  108. 

of  Wisconsin  held  otherwise  upon  the  ground  that  this  land  was 
not  included  within  the  express  terms  of  the  mortgage.1 

A  mortgage  of  a  railroad,  its  property  and  franchises,  does  not 
without  special  mention  include  land  purchased  under  the  au- 
thority of  a  provision  in  its  charter  which  authorized  the  com- 
pany to  hold  such  an  amount  of  land,  not  exceeding  five  acres  in 
any  one  place,  and  improvements,  at  the  termination  and  along 
the  line  of  the  road  necessary  for  water  stations,  the  accommoda- 
tion of  passengers,  and  the  shipping  of  goods,  and  for  shops  and 
like  purposes,  if  the  land  so  purchased  be  not  appropriated  or  used 
for  these  purposes.2 

107.  Canal  boats  owned  by  a  railroad  company  and  used  by  it 
in  connection  with  its  road,  but  beyond  the  terminus  of  it,  are  not 
included  in  a  mortgage  of  the  road  which  does  not  specify  them, 
except  under  the  general  description  of  "  all  other  personal  prop- 
erty whatsoever  in  any  way  belonging  or  appertaining  to  the  said 
railroad."  The  boats  might  be  said  to  be  in  a  general  way  ac- 
cessory to  the  business  of  the  road,  but  they  cannot  be  said  to 
belong  or  appertain  to  the  road.3 

Although  a  corporation,  in  excess  of  the  powers  conferred  upon 
it  by  its  charter,  purchase  and  pay  for  steamboats  and  canal  boats, 
it  may,  when  once  in  possession  of  such  property,  make  a  valid 
mortgage  of  them.  Neither  the  corporation  nor  any  one  claiming 
under  it  can  set  up  a  violation  of  its  chartered  powers  to  defeat 
the  title  of  a  mortgagee.  On  the  other  hand,  the  mortgagee  hav- 
ing sold  the  property  under  his  mortgage  cannot  on  this  ground 
excuse  himself  from  accounting  for  the  proceeds  of  the  sale  upon 
the  mortgage  debt.4 

108.  An  equitable  right  of  action  may  be  the  subject  of  a 
mortgage,  yet  it  is  important  that  such  right  should  he  described, 
both  in  the  mortgage  and  in  the  advertisement  of  tin?  sale  under 
it,  so  that  it  shall  be  apparent  that  the  intention  was  to  include 
the  right  in  the  mortgage  and  the  sale.  The  La  Crosse  and  Mil- 
waukee Railroad  Company  having  mortgaged  its  road,  afterwards 

1   Dinsmorei;.  Racine&Miss.  It.  K.  Co.        ■'■  Parish  v.  Wheeler,  22 N.  Y.  494. 
12  Wis.  649.  •'   Parish  v.  Wheeler,  22  N.  V.  494  ;  and 

-  JToungman  v.  Elmira  &  Williamsport     see   Bissell  v.  Mich.  South.  &  North.  End. 
R.  K.  Co.  65  Pa.  St.  278.  R.  R.  Co.  [b.  258. 

89 


§  108.]  PROPERTY    COVERED   BY    RAILROAD   MORTGAGES. 

sold  and  conveyed  one  branch  or  division  of  it  to  the  Milwaukee 
and  Western  Railroad  Company,  which  assumed  the  payment  of 
a  portion  of  the  mortgage  debt,  and  covenanted  that  upon  default 
in  the  payment  of  the  principal  or  interest  of  such  portion  the 
former  company  might  reenter  upon  the  premises  and  foreclose 
and  sell  the  same.  Subsequently  the  La  Crosse  and  Milwaukee 
Company  executed  another  mortgage  of  its  line  of  road  from  Mil- 
waukee to  La  Crosse,  with  all  the  real  property,  rolling  stock,  and 
franchises  connected  with  the  road,  together  with  all  the  bonds, 
negotiable  paper,  accounts,  "  causes  of  action,  demands  and  choses 
in  action,  of  whatever  nature,"  which  the  company  might  own  or 
have  any  interest  in  on  the  day  of  its  first  making  default  on  the 
bonds  secured  by  the  mortgages.  Default  was  made  under  this 
mortgage,  and  the  property  as  described  in  the  mortgage  was  sold 
under  a  power  of  sale,  and  was  bought  by  a  trustee  in  behalf  of 
the  bondholders.  The  purchaser  claimed  the  benefit  of  the  cov- 
enant made  by  the  Milwaukee  and  Western  Company  in  favor  of 
the  La  Crosse  and  Milwaukee  Company,  and  sought  to  enforce  it 
by  suit.  It  was  held,  however,  that  whether  a  right  to  enforce 
the  covenant  could  be  mortgaged  by  general  language  like  that 
contained  in  this  mortgage  or  not,  still  such  a  right  would  not  pass 
by  a  sale  under  the  power  without  a  more  definite  description  in 
the  notice  of  sale,  so  that  purchasers  might  know  what  they  were 
purchasing.1  Mr.  Justice  Cole,  delivering  the  opinion  of  the  court, 
said  :  "  A  sale  at  auction  and  upon  notice  implies  that  there  is 
some  designation  of  the  thing  offered  to  be  sold,  so  that  persons 
whom  the  law  invites  to  such  auction  may  be  able  to  know  where 
and  what  is  the  property  they  are  about  to  purchase.  In  case  of 
selling  a  railroad,  it  might  be  sufficient  to  designate  the  property 
sold  as  a  railroad  between  given  points,  with  its  rights,  privileges, 
and  franchises.  But  it  seems  to  me,  if  choses  in  action  and  legal 
instruments  are  to  be  sold,  there  ought  to  be  some  description  or 
designation  of  them.  Otherwise  such  sales  will  be  a  mere  idle 
ceremony,  resulting  frequently  in  great  injury  to  the  debtor  com- 
pany, and  leading  to  the  most  fraudulent  speculations.  If  the 
covenants  in  this  indenture  were  actually  sold  by  the  trustee,  and 
he  bid  in  reference  to  them,  it  should  be  so  averred." 

Book  debts  of  a  company  may  be  mortgaged  under  a  power  to 
raise  money  by  mortgage,  with  or  without  power  of  sale,  of  any  of 

1  Milwaukee  &  Minn.  Ry.  Co.  v.  Milwaukee  &  Western  R.  R.  Co.  20  Wis.  174. 

90 


WHAT    PERSONAL   PROPERTY   PASSES   AS   FIXTURES.     [§§  109,  110. 

the  property  of  the  company.     Such  debts,  whether  accrued  or 
not,  are  property.1 

III.    What  Personal  Property  passes  as  Fixtures  or  Part  of  the 

Realty. 

109.  A  railroad  track  laid  down  for  the  permanent  use  of 
the  road  is  a  fixture  and  a  part  of  the  realty.  But  a  track  may 
be  personal  property  and  no  part  of  the  real  estate.  Whether  in 
anv  case  it  be  realty  or  personalty  is  perhaps  a  mixed  question  of 
law  and  of  fact,  like  most  questions  as  to  fixtures.  A  track  laid, 
for  instance,  for  the  purpose  of  taking  gravel  from  gravel  pits,  may 
be  realty  or  personalty ;  and  in  determining  which  it  is,  the  purpose 
with  which  it  was  put  down  is  of  more  importance  than  the  man- 
ner in  which  it  is  annexed  to  the  land.  If  permanent  in  its  charac- 
ter and  use,  or  intended  to  be  appropriated  to  the  land  for  its  use 
and  benefit,  and  adapted  to  any  use  or  purpose  to  which  the  land 
could  be  put,  and  if  at  the  same  time  it  is  so  laid  that  it  cannot 
be  easily  moved,  it  is  a  part  of  the  realty  and  passes  by  a  convey- 
ance. But  if  the  track  was  neither  originally  built  upon  the  land 
for  the  use  and  benefit  of  the  land,  nor  in  anywise  adapted  to  the 
uses  to  which  the  land  could  be  put ;  and  if  the  structure  be 
not  of  a  permanent  character,  but  temporary,  so  that  it  could  be 
easi  y  moved  on  the  ground  and  taken  therefrom  without  any  in- 
jury to  the  land,  and  it  was  not  intended  by  the  parties  who  built 
it  and  owned  the  land  at  the  time  it  was  built  that  it  should  be 
appropriated  to  the  use  of  the  land,  but  simply  to  enable  the  rail- 
road company  to  take  the  gravel  from  the  land,  the  track  would 
not  be  a  fixture  or  appurtenance  belonging  to  the  land,  but  per- 
sonal property,  which  might  be  removed  by  the  owner  of  the  track 
without  incurring  any  liability  to  the  owner  of  the  land.2 

110.  Material  placed  upon  the  land  of  a  railway  for  use  in 
repairing  the  road,  such  as  iron  rails,  chairs,  spikes,  ami  ties,  con- 
stitute a  part  of  the  realty  and  pass  by  a  mortgage  of  the  road.8 
"  Nor  do  wo  want  analogies  in  the  well  settled  principles  <»!'  the, 
common  law  to  hold  that  materials  provided  and  designed  to  be 
attached  to  the  road  arc,  for  tint  purposes  of   a  mortgage  or  a  con- 

'  Bloomer  v.  Union  Coal  &  Iron  Co.  L.  N.  J.  38  X.  J.  I-  165  ;  S.  C.  18  An..  Ry. 
R.  16  Eq.383.  R.  ':; 

-  Van   Kearen  v.  Central  R.  R.  Co.  of        :J  Palmer  v.  Forbes,  28  til.  801,  802. 

91 


§§  111,  112.]       PROPERTY    COVERED    BY   RAILROAD   MORTGAGES. 

veyance,  a  part  of  the  real  estate  itself.  It  is  a  familiar  principle 
to  all,  that  rails  hauled  on  to  the  land,  designed  to  be  laid  into  a 
fence,  or  timber  for  a  building,  although  not  yet  raised,  but  lying 
around  loose,  and  in  no  way  attached  to  the  soil,  are  treated  as  a 
part  of  the  realty,  and  pass  with  the  land  as  appurtenances.  By 
applying  these  familiar  principles  of  the  common  law,  we  may  be 
enabled  to  determine  what  we  should  consider  as  appurtenant  to 
the  freehold,  and  what  should  pass  by  a  conveyance  of  the  road, 
and  consequently  what  is  covered  by  and  embraced  within  a  mort- 
gage encumberingthe  road,  acknowledged  and  recorded  as  a  mort- 
gage of  real  estate."  1 

111.  An  iron  safe  not  attached  to  the  freehold  is  personal 
property,  and  liable  to  be  taken  on  execution  against  the  com- 
pany ;  and  an  iron  planing-machine  is  also  personal  property, 
unless  it  is  so  connected  with  and  attached  to  the  realty  as  to 
indicate  that  it  is  designed  to  be  permanent,  or  its  removal  would 
be  injurious  to  the  freehold.2 

That  such  property  as  station-houses,  engine-houses,  freight- 
houses,  and  the  workshops  of  a  railroad  company,  with  their  ap- 
purtenances, and  also  piers  and  wharves  and  their  appendages, 
when  annexed  to  land  of  the  company  covered  by  a  mortgage,  be- 
come part  of  the  realty  embraced  in  the  mortgage,  would  be  ques- 
tioned by  no  one.  But  tools  and  implements  in  the  workshops, 
and  furniture  in  station-houses,  and  all  other  property  of  a  per- 
sonal nature,  such  as  is  commonly  used  for  other  than  railway 
purposes,  are  not  part  of  the  realty  subject  to  such  mortgage.3 

112.  Cast-off  articles,  such  as  broken  wheels,  broken  rails, 
broken  ties,  and  other  scrap  and  refuse  iron,  once  forming  a  part 
of  the  road,  or  used  in  its  operation,  and  subject  to  a  mortgage 
of  it,  but  which  have  ceased  to  be  of  any  value  to  the  company, 
except  for  sale,  or  for  recasting  into  new  articles  for  the  use  of  the 
road,  still  remain  subject  to  the  lien  of  the  mortgage,  if  a  proper 
management  of  the  road  required  that  they  should  be  repaired, 
recast,  or  exchanged  for  new  articles.4     "  If  such  property  is  lia- 

1  Chief  Justice  Caton  in  Palmer  v.  3  Williamson  v.  N.  J.  Southern  R.  R. 
Forbes,  supra.  Co.  28  N.  J.  Eq.  277,  284,  per  Runyon, 

2  Titus  v.  Mabee,  25  111.  257.    See  §  141.     Chancellor. 

*  Coopers  v.  Wolf,  15  Ohio  St.  523. 

92 


'  WHAT    PERSONAL   PROPERTY    PASSES   AS   FIXTURES.     [       [§  113. 

ble  to  execution,"  said  Mr.  Justice  Welch,  delivering  the  opinion 
of  the  court,  "  where  shall  we  draw  the  line  between  the  prop- 
erty of  the  mortgagees  and  that  of  the  company  ?  When  a  bridge 
breaks  down,  or  a  tunnel  falls  in,  or  when  trains  are  thrown  from 
the  track  and  broken,  shall  executions  be  immediately  levied  upon 
the  stone,  the  timbers,  and  the  broken  cars  or  engines  ?  Shall 
creditors  of  an  insolvent  company  line  its  track,  and  watch  for 
and  seize  its  worn-out  rails,  broken  wheels,  fragments  and  scraps, 
as  fast  as  they  come  to  hand  ;  their  priority  over  each  other  de- 
pending on  their  diligence  in  the  business  ?  If  so,  it  is  easy  to 
see  that  the  security  of  the  mortgagees,  which  depends,  ultimately 
and  almost  solely,  upon  the  ability  of  the  road  to  run,  and  pro- 
duce a  revenue,  would  be  seriously  impaired.  Besides,  it  would 
be  almost  impracticable  to  mark  the  boundary  between  the  rights 
of  the  mortgagees  and  those  of  the  judgment  creditors,  and  the 
result  would  be  a  scramble  between  creditors,  continual  litigation, 
without  any  nearer  approximation  to  justice  and  equity  between 
the  parties." 

113.  Coal,  wood,  oil,  and  property  of  like  description  in- 
tended for  daily  consumption,  are  personal  property,  and  subject 
to  the  rules  that  govern  the  transfer  of  such  property.1 

In  a  case  before  the  Supreme  Court  of  Illinois,  the  question 
whether  fuel,  office  furniture,  and  other  detached  property  of  like 
nature,  of  a  railway  company,  was  embraced  within  a  mortgage 
executed  and  recorded  as  a  mortgage  of  real  estate,  was  consid- 
ered in  all  its  aspects.2  It  was  first  determined  that  such  prop- 
erty could  not  be  considered  as  attached  to  the  realty,  or  as  savor- 
ing of  it  so  as  to  pass  as  fixtures,  or  incident  to  it.  "  When  it 
became  apparent,"  said  Mr.  Justice  Walker,  delivering  the  opin- 
ion of  the  court,  "  that  the  exception  was  untenable,  that  it  was 
real  estate,  then  refuge  was  sought  under  the  broad  mantle  — 
franchise  ;  and  wood,  coal,  writing-desks,  stationery,  and  all  kinds 
of  household  furniture,  which  could  not  be  called  real  estate,  and 
must  not  be  called  chattels,  and  subject  to  the  rules  of  law  gov- 
erning such  property,  were  called  franchise.  What,  then,  is  this 
franchise,  which  it  is  claimed  may  transmute  personal  into  real 
estate,  and  change  the  very  nature  and  use  of  things  in  such  a 

1  Palmer  v.  Forbes,  32  111.301,302.   Sec        *  Hunt  v.  Bullock,  23  111.  820. 
§140. 

93 


§  113.]  PROPERTY    COVERED    BY    RAILROAD   MORTGAGES. 

manner?  It  is  only  an  immunity,  privilege,  or  exemption  from 
the  ordinary  burdens  and  restrictions  to  which  the  citizens  of  the 
state  or  government  are  generally  subject,  and  is  usually  granted 
to  bodies  corporate  or  politic,  for  public  convenience.  This  privi- 
lege, or  the  franchise,  when  granted  to  such  bodies,  is  found  alone 
in  their  charters,  or  the  law  which  brings  them  into  existence.  In 
all  other  things  outside,  and  independent  of  their  charter  privi- 
leges, they  have  always  been  held  amenable  to,  and  are  governed 
b}T,  the  general  laws  of  the  state,  to  the  same  extent  and  in  the 
same  manner  as  individuals.  The  courts  are  powerless  to  extend 
tlnir  privileges  beyond  the  grant  contained  in  their  charter,  either 
in  express  terms,  or  from  necessary  implication,  to  effectuate  the 
objects  of  their  creation." 

It  was  likewise  urged,  that  railroad  companies,  in  executing 
mortgages  or  deeds  of  trust,  are  not  required  to  conform  to  the 
statute  regulating  chattel  mortgages,  in  respect  to  property  which 
is  purely  personal  ;  that  public  policy  requires  that  effect  should 
be  given  these  instruments  in  despite  of  the  statute  ;  but  the 
court  held  the  statute  to  be  as  obligatory  upon  railroad  compa- 
nies as  upon  other  corporations  or  upon  individuals.  "  That  these 
corporations,  when  they  mortgage  their  road,  tracks,  and  fran- 
chises, thereby  mortgage  all  of  the  permanent  fixtures,  such  as 
the  road  equipments  for  their  continued  use,  and  connected  with 
them,  we  have  no  doubt.  And  by  such  a  mortgage  all  future 
additions  to  it,  of  the  same  permanent  nature,  being  an  incident 
to  the  real  estate,  must  become  subject  to  the  mortgage  as  do  im- 
provements to  other  real  estate  mortgaged  by  individuals.  So  of 
repairs  to  personal  property  of  the  road  legally  mortgaged,  and 
not  designed  for  daily  consumption.  But  that  fuel,  office  fur- 
niture, stationery,  materials  for  lights,  and  all  other  detached 
property  of  that  character  is  personalty,  we  have  no  hesitation  in 
determining.  To  hold  otherwise  would,  it  seems  to  us,  involve 
us  in  an  absurdity,  if  followed  to  its  inevitable  consequences,  that 
we  are  not  prepared  to  adopt,  for  the  purpose  of  relieving  against 
what  might  appear  to  be  a  hardship  in  a  particular  case." 

In  Indiana,  however,  it  has  been  held  that  a  mortgage  of  a 
railroad  and  its  appurtenances,  "  with  the  superstructure,  rails, 
and  other  materials  used  thereon"  embraces  wood  provided  for  the 
use  of  the  road  from  time  to  time.1     Although  such  property  may 

1  Coe  v.  McBrown,  22  Ind.  252. 

94 


OF   TOLLS    AND   INCOME   OF   A   RAILROAD.  [§  114. 

be  levied  upon  by  a  creditor  of  the  railroad  company,  and  the 
mortgagee  is  not  entitled  to  an  injunction  against  the  proceeding, 
because  the  mortgagor's  right  of  redemption  is  a  leviable  interest, 
yet  the  purchaser  at  the  sheriff's  sale  is  not  entitled  to  possession 
of  the  property  sold  until  he  complies  with  the  conditions  of  the 
mortgage.1  Practically,  therefore,  under  this  rule,  there  can  be 
no  effectual  levy  upon  the  mortgaged  property. 

IV.   What  is  covered  by  a  Mortgage  of  the  Tolls  and  Income  of  a 

Railroad. 

114.  The  earnings  of  a  railroad,  while  it  is  allowed  to  re- 
main in  the  possession  of  the  mortgagor,  are  not  subject  to  the 
lien  of  the  mortgage,  although  in  terms  the  mortgage  covers  the 
tolls  of  the  road,  if  at  the  same  time  the  mortgage  implies  that  the 
mortgagor  is  to  hold  possession  and  receive  the  earnings  of  the 
road  until  the  mortgagee  takes  possession.2  Thus  the  Des  Moines 
Valley  Railroad  Company  executed  to  trustees  a  mortgage  of  its 
road,  property,  and  franchises,  "  together  with  the  tolls,  rents,  and 
profits,  to  be  had,  gained,  or  levied  therefrom."  The  mortgage 
provided  that  after  default  continued  for  a  certain  period,  the 
trustees  might  enter  and  take  possession  ;  but  that  until  such  time 
the  mortgagor  should  have  the  sole  right  of  possession,  use,  and 
management  of  the  mortgaged  premises.  The  mortgagees  subse- 
quently commenced  a  suit  to  foreclose  the  mortgage,  but  did  not 
take  possession  of  the  property  or  ask  for  the  appointment  of  a, 
receiver  in  the  suit,  rending  the  suit  a  creditor  of  the  company 
obtained  judgment  against  it,  and  attached  as  garnishee  an  agent 
of  the  company  who  had  money  belonging  to  it  received  from  the 
sale  of  passenger  tickets  and  for  freight  charges.  A  receiver  was 
subsequently  appointed  in  behalf  of  the  mortgagees,  who  also 
claimed  tin-  funds  attached  in  the  hands  of  the  agent  and  received 
by  him  before  the  appointment  of  the  receiver.  The  Supremo 
Court  of  the  United  States  adjudged  that  the  mortgagees  had  no 
right  to  the  earnings  of  the  road  until  they  took  possession  through 
the  receiver.8  "Possession,"  said  Mr.  Justice  Swayne,  delivering 
the  opinion  of  the  court,  "draws  after  it  the  right  to  receive  and 
apply  the  income.     Without  this  the  road  could  not  be  operated, 

1  (',,,■ >,v.  McBrown,  supra.  '■'■  Gilman  y.  Illinois   &  Miss.  Telegruph 

-  Merchants'  Bank  <•.  Petersburg  R.  K.     Co.  91  U.  S.  60S. 
■2\  Pittsburg  I..  -I.  192. 

95 


§  114.]  PROPERTY    COVERED    BY    RAILROAD    MORTGAGES. 

and  no  profits  could  be  made.  Mere  possession  would  have  been 
useless  to  all  concerned.  The  right  to  apply  enough  of  the  income 
to  operate  the  road  will  not  be  questioned.  The  amount  to  be  so 
applied  was  within  the  discretion  of  the  company.  The  same  dis- 
cretion extended  to  the  surplus.  It  was  for  the  company  to  de- 
cide what  should  be  done  with  it.  In  this  condition  of  things  the 
whole  fund  belonged  to  the  company,  and  was  subject  to  its  con- 
trol. It  was,  therefore,  liable  to  the  creditors  of  the  company  as 
if  the  mortgages  did  not  exist.  They  in  no  wise  affected  it.  If 
the  mortgagees  were  not  satisfied,  they  had  the  remedy  in  their 
own  hands,  and  could  at  any  moment  invoke  the  aid  of  the  law, 
or  interpose  themselves  without  it." 

The  same  question  had  previously  been  passed  upon  by  the  Su- 
preme Court  of  the  United  States  in  the  case  of  G-alveston  R.  R. 
Co.  v.  Cowdrey.1  The  mortgages  conveyed  the  road  and  other  cor- 
porate property,  and  all  tolls,  issues,  and  profits,  whenever  default 
should  be  made  in  paying  the  bonds  ;  but  they  provided  that  so 
long  as  no  default  was  made  in  payment  of  principal  or  interest, 
the  property  should  remain  in  the  company's  possession  ;  but  if  it 
should  be  in  default  for  the  space  of  three  months  in  payment  of 
either,  and  on  request  in  writing  by  any  holder  of  the  bonds,  the 
trustees  might  take  actual  possession  of  the  road,  and,  after  notice, 
sell  the  same.  The  trustees  claimed  that  they  were  entitled  under 
the  mortgage  to  the  tolls  and  income  received  by  the  purchasers 
of  the  road  during  the  time  it  was  operated  b}'  them  after  default 
and  before  possession  was  taken  under  the  mortgage  ;  but  the 
court  were  of  opinion  that  the  clause  of  the  mortgage  providing 
for  the  taking  of  possession  under  it  pointed  out  the  manner  in 
which  the  pledge  of  the  tolls  and  income  was  to  be  practically  car- 
ried into  effect ;  and  they  held  that  at  any  rate  until  a  regular 
demand  for  the  tolls  and  income  was  made,  the  purchasers  in 
possession  of  the  road  were  not  accountable  for  them. 

Again,  in  a  still  more  recent  case,  the  Supreme  Court  of  the 
United  States  has  reiterated  its  decision  that  a  pledge  of  rents 
and  profits  can  be  made  available  to  the  mortgagee  only  upon  his 
taking  possession  himself  or  having  a  receiver  appointed  and  put 
in  possession.2     The  mortgage  in  this  case  included,  besides  the 

1  11  Wall.  459.  proving  Galveston  R.  R.  Co.  v.  Cowdrey, 

2  American  Bridge  Co.  v.  Heidelbach,     11  Wall.  459;  Gilmanv.  Illinois  Telegraph 
94  U.  S.  79S  ;  4  C.  L.  J.  3G7,  citing  and  ap-     Co.  91  U.  S.  603. 

96 


OF   TOLLS   AND   INCOME    OF    A   RAILROAD.  [§  115. 

bridge,  "  the  rents,  issues,  and  profits  of  said  bridge,  as  far  as  the 
same  are  not  required  to  pay  the  necessary  expenses  of  keeping 
in  repair  and  operating  said  bridge,  which  rents,  issues,  and  profits 
....  are  hereby  pledged  to  the  payment  of  said  interest  as  it 
matures."  It  was  further  provided  that  after  default  for  a  certain 
period  the  mortgage  trustees  might  take  possession.  A  judgment 
creditor  of  the  bridge  company  claimed  priority  of  payment  out  of 
money  in  its  possession,  and  out  of  rents  due  to  it  from  a  railroad 
company,  while  the  mortgage  trustees  sought  to  have  these  funds 
applied  upon  the  mortgage  ;  but  the  court  held  that  inasmuch  as 
the  trustees  had  not  taken  possession  they  were  no  more  entitled 
to  these  funds  than  they  would  be  to  property  that  was  never 
within  the  scope  of  the  mortgage.  Of  course,  after  the  trustees 
under  such  a  mortgage  have  taken  possession,  the  earnings  belong 
to  them  and  are  no  longer  subject  to  garnishment.1 

Under  such  a  mortgage,  also,  it  seems  that  after  specific  income 
of  a  road  has  been  set  apart  by  the  corporation  for  the  payment 
of  interest  on  its  bonds  and  as  a  sinking  fund  for  their  redemption, 
by  agreement  with  the  mortgagees,  although  in  advance  of  the 
earnings  of  the  money,  it  is  not  subject  to  attachment  by  a  cred- 
itor of  the  corporation.  Such  income  is  in  that  case  specifically 
pledged  to  the  use  of  the  bondholders,  and  becomes  theirs  as  soon 
as  it  is  earned.2 

115.  The  earnings  of  a  railroad  company,  before  foreclos- 
ure or  possession  taken  by  the  trustee,  are  liable  to  garnish- 
ment, although  included  in  a  previous  mortgage,  where  this  pro- 
vides that  until  default  the  company  may  possess  and  use  the 
road,  and  receive  the  rents  and  profits  arising  from  it.3  Thus 
the  Mississippi  Valley  and  Western  Railway  Company  conveyed4 
its  "rights,  powers,  franchises,  emoluments,  income,  and  prop- 
erty," to  trustees  by  a  mortgage,  which  provided  that  after  a  de- 
fault continued  for  six  months  it  should  be  the  duty  of  the  trus- 
tees, upon   request  of  a  certain  portion  of  the  bondholders,  "  to 

1  Galena  &  Chicago  Union  R.  R.  Co.  v.  341;  53  Me.  308  ;  Noycs  v.   Rich,  52  Mo. 

Menzies,  26  111.  121.  1 15,  overruling  Woodman  v.  York  &  Cum- 

-  Galena  &  Chicago  Union  R.  R  Co.  y.  berland  K.  R.  Co.  15  Me.  207  j  Merchants' 

Menzies,  supra.  Bankv.  Petersburg  R.  1!.  34  Leg.  int. 240. 

:;  Smith  v.  I  astern  I!.  I!.  Co.  124  Mn^.  '  Mississippi  Valley  >.<  Western  Ry.  Co. 

154;  Ellis  >.    Boston,  Hartford  &  Erie  R.  v.  Q.  S.  Express  Co.81  [11.534. 
R.  I  o.  107  Mass.  l  ;  Hath  v.  Miller,  51  Me. 

7  97 


§  115.]  PROPERTY    COVERED   BY    RAILROAD   MORTGAGES. 

enter,  forthwith,  upon  the  railroad  property,"  and  to  use  and 
operate  it  until  all  over-due  coupons  should  be  paid,  or  until  the 
road  and  its  property  should  be  sold  pursuant  to  the  power  in 
the  mortgages  or  under  a  decree  of  court ;  but  until  default  the 
company  is  to  possess  and  use  the  road  and  property,  and  receive 
the  rents,  profits,  and  income  arising  therefrom.  Earnings  of  the 
company  in  the  hands  of  the  United  States  Express  Company 
were  attached  by  garnishee  process,  whereupon  the  mortgage 
trustees  interpleaded,  claiming  the  amount  due  from  the  express 
com  pan  v  as  belonging  to  them  under  the  mortgage.  The  court, 
however,  was  unable  to  discover  an  intention  to  vest  a  right  to  the 
income  in  the  trustees,  until  default  in  the  condition  and  posses- 
sion taken  by  the  trustees.  While  it  is  the  duty  of  the  railroad 
company  to  apply  the  income,  after  payment  of  current  expenses, 
including  necessary  repairs  and  improvements,  to  the  liquidation 
of  the  interest  due  upon  its  bonds,  "  this  obligation,  of  its  own 
force,  no  more  carries  title  to  the  particular  money  received  as 
income  to  the  bondholders  or  trustees,  than  does  the  obligation 
to  pay  a  debt,  in  ordinary  cases,  carry  title  to  the  creditors  of 
the  money  in  the  debtor's  pocket.  The  fact  that  the  mortgagor 
is  in  possession,  operating  the  road,  renders  it  indispensable  that 
he  shall  pay  current  expenses,  and  necessary  repairs  and  im- 
provements, and  that  he  shall  exercise  his  judgment  and  discre- 
tion as  to  the  extent  repairs  and  improvements  shall  be  made  ; 
and  this  can  only  be  paid  out  of  the  income.  It  is  inconsistent 
with  such  control  over  the  income  that  it  shall  be  the  property 
of  the  trustees." 

The  views  of  the  court  in  this  case  were  grounded  upon  the 
common  law  rule  that  the  mortgagor  is  not  required  to  account  to 
the  mortgagee  for  rents  and  profits  while  he  remains  in  posses- 
sion.1 The  railroad  company  was  incorporated  by  acts  of  the  leg- 
islatures of  the  States  of  Iowa  and  Missouri,  and  its  road  was  lo- 
cated in  those  states,  although  its  cars  were  also  run  over  the 
bridge  which  crosses  the  Mississippi  River  at  Quincy,  and  into  the 
State  of  Illinois.  It  was  insisted,  therefore,  that  comity  required 
that  the  court  should  follow  the  construction  of  this  question 
given  by  the  Supreme  Court  of  Iowa,  which  had  decided  that  the 
income  of  a  railroad  under  such  a  mortgage  belongs  to  the  trus- 
tees, and  could  not  be  reached  by  process  of  garnishment  at  the 
1  Jones  on  Mortgages  §  670;  Moore  v.  Titraan,  44  111.367,  371. 

98 


OF   TOLLS   AND   INCOME    OF    A    RAILROAD.  [§  116. 

instance  of  creditors.1  But  the  court  of  Illinois  declined  to  fol- 
low the  ruling  in  Iowa,  on  the  ground  that  comity  in  no  case  re- 
quired that  court  to  follow  other  than  what  it  regarded  as  the 
clearly  established  law  of  the  foreign  jurisdiction,  with  reference 
to  the  contract  to  be  affected  by  it.  Here  the  contract  was  af- 
fected by  the  laws  of  two  foreign  jurisdictions.  Neither  is  supe- 
rior to  the  other.  While  the  law  of  Iowa  was  known  to  the  court, 
that  of  Missouri  was  not ;  therefore  the  case  was  regarded  as  one 
in  which  the  obligations  of  inter-state  comit}r,  in  the  application 
of  the  law,  cannot  be  appealed  to,  and  the  court  must  follow  that 
construction  which  it  believes  to  be  authorized  by  law.2 

116.  At  law  a  railroad  mortgage  cannot  be  made  to  operate 
upon  the  future  earnings  of  the  road  as  against  attaching  cred- 
itors of  the  company.  The  European  and  North  American  Rail- 
way Company  executed  a  mortgage  of  "  all  its  right,  title,  and  in- 
terest in  and  to  all  and  singular  its  property  real  and  personal,  of 
whatever  nature  and  description,  now  possessed,  or  to  be  hereafter 
acquired,  including  all  its  rights,  privileges,  franchises,  and  ease- 
ments." Subsequently  it  entered  into  a  contract  with  the  East- 
ern Express  Company  to  carry  their  freight  for  five  years  at  a 
stipulated  price,  to  be  paid  in  monthly  instalments.  Upon  the 
first  day  of  November,  1875,  the  express  company  became  in- 
debted to  the  railroad  company  for  a  month's  service  under  the 
contract.  On  that  day  the  express  company  was  summoned  as 
trustee  of  the  railroad  company.  The  trustee  under  the  mort- 
gage took  formal  possession  of  the  road  on  the  twenty-seventh  day 
of  October  preceding,  for  condition  broken.  He  claimed  the 
monthly  payment  in  the  hands  of  the  express  company,  as  cov- 
ered by  the  mortgage.  The  Supreme  Court  of  Maine 3  decided 
against  this  claim.  They  regarded  the  contest  as  one  where  legal 
and  not  equitable  rules  are  to  prevail,  the  action  being  at  law. 
Tin'  contract  with  the  express  company  did  not  exist  at  the  time 
of  the  mortgage,  even  if  this  could  be  held  to  include  it  under 
the  general  terms  of  the  description.  At  law,  therefore,  the  con- 
tract was  not  assigned  by  the  mortgage.  Neither  does  it  come 
within  any  of  the  modifications  of  the  common  law  principle  that 

1  Dunham  v  [sett,  15  Iowa,  284.  z  Emerson  v.  European  &  N.  A.  Rjr.  Co. 

2  Mississippi  Valley  &  Western  Ry.  Co.     07  Me.  387. 
v.  U.  S.  Express  Co.  81  111.  534. 

99 


§  117.]         PROPERTY    COVERED    BY   RAILROAD    MORTGAGES. 

a  conveyance  cannot  be  made  of  what  does  not  at  the  time  exist. 
Such  a  contract  is  not  accessory  to  the  road  or  its  franchise,  or 
any  of  its  property.  Moreover,  even  in  equity  an  assignment  of 
claims  not  then  existing,  to  be  upheld,  must  be  of  such  claims  as 
both  parties  expected  would  exist.  In  conclusion,  the  court  say 
that  the  portion  of  the  fund  earned  before  the  trustee  took  pos- 
session cannot  be  regarded  as  any  part  of  the  property  mort- 
gaged, but  rather  the  earnings  derived  from  the  use  of  such 
property  by  the  mortgagor  in  possession.  The  trustee  is  entitled 
to  the  earnings  of  the  road  from  the  time  he  took  possession,  and 
therefore  the  monthly  payment  should  be  apportioned,  and  the 
trustee  charged  for^the  part  earned  at  the  time  the  trustee  took 
possession. 

117.  Only  the  net  income  of  the  road,  after  the  payment  of 
all  expenses,  so  long  as  the  mortgagors  remain  in  possession,  is 
covered  by  a  mortgage  of  all  the  tools,  income,  rents,  issues,  and 
profits  of  a  railroad,  which  also  provides  that  upon  default  the 
mortgagees  may  take  possession,  work  the  road,  and  apply  the 
net  income  to  the  payment  of  the  debt,  but  that  until  default  the 
mortgagors  shall  remain  in  possession.  Therefore,  the  railroad 
company,  while  in  the  possession  and  management  of  the  road, 
may  contract  for  such  articles  as  enter  into  the  expense  of  main- 
taining and  operating  the  road,  and  a  creditor  furnishing  such  ar- 
ticles may  attach,  by  trustee  or  garnishee  process,  tolls  due  to  the 
mortgagors  from  another  corporation.1 

A  mortgage  made  by  the  Virginia  and  Tennessee  Railroad 
Company  conveyed  its  property  in  esse,  and  all  it  might  after- 
wards acquire,  with  all  tolls,  issues,  and  income,  and  provided  that 
the  company  might  remain  in  possession  until  default,  and  should 
have  the  right  to  apply  any  of  the  money  or  personal  property 
of  the  company  to  the  construction  or  repair  of  the  road  or  to  its 
current  expenses,  or  the  payment  of  debts  ;  and  moreover  should 
have  the  right,  after  deducting  from  the  net  profits  an  amount  suf- 
ficient to  pay  the  interest  on  its  bonds,  and  to  lay  aside  a  sinking 
fund  of  one  per  cent,  upon  the  amount  of  the  bonds,  to  distribute 
the  balance  in  dividends  ;  and  further,  that  in  case  of  default,  the 
trustees  should  take  possession  of  the  road  and  use  the  same  ac- 
cording to  the  rules  and  regulations  and  lawful  directions  of  the 

'  Parkhurst  v.  Northern  Central  R.  R.  Co.  19  Md.  472. 
100 


OF   TOLLS    AND   INCOME    OF   A   RAILROAD.  [§  118. 

president  and  directors.  Before  default  a  creditor,  whose  debt 
was  properly  chargeable  to  the  expense  account,  attached  tolls 
belonging  to  the  road.  The  Supreme  Court  of  Tennessee  held 
that  inasmuch  as  the  creditor  had  attached  the  tolls  before  they 
came  to  the  hands  of  the  trustees,  and  before  any  default  had  oc- 
curred in  the  payment  of  the  bonds  or  interest,  and  while  the 
road  remained  in  the  hands  of  the  company,  he  acquired  a  lien 
superior  to  that  of  the  mortgage.1  The  receipts  of  the  road  were 
not  regarded  as  coming  under  the  mortgage  lien  until  the  net 
profits  had  been  ascertained.  "  This,  we  think,  is  the  plain  mean- 
ing of  the  stipulations  of  the  deed.  To  construe  the  deed  as  in- 
tending to  fasten  the  lien  of  the  mortgage  on  the  gross  earnings, 
would  result  in  depriving  the  company  of  appropriating  them  to 
the  current  expenses  of  the  road,  and  effecting  the  objects  and 
purposes  of  the  deed  itself.  The  mortgagees  look  to  the  net  earn- 
ings of  the  road  for  the  payment  of  their  interest  and  their  bonds. 
They  agree  that  the  company  shall  operate  the  road,  in  order 
that  net  profits  maybe  produced.  To  enable  them  to  do  this, 
they  leave  in  the  hands  of  the  company  the  gross  earnings,  to  be 
used  in  meeting  current  expenses  and  debts." 

So  long  as  mortgage  trustees  or  the  bondholders  omit  to  take 
possession  of  the  mortgaged  property  after  a  default,  they  cannot 
complain  that  the  income  of  the  road  is  applied  to  completing  and 
operating  the  road,  and  to  the  payment  of  floating  debts.2 

118.  Money  in  the  hands  of  the  treasurer  of  a  railroad  com- 
pany at  the  time  possession  is  taken,  under  a  mortgage  cover- 
ing its  property  and  earnings,  belongs  to  the  corporation  and  not 
to  the  trustees,  in  case  the  mortgage  provides  that  until  default 
the  company  may  retain  possession;  and  if  the  trustees  take  pos- 
session of  this  money,  inasmuch  as  it  is  not  subject  to  the  lien  of 
the  mortgage,  it  is  subject  to  garnishment  at  the  suit  of  judgment 
creditors  of  the  company.  The  mortgage  of  the  St.  Paul  and 
Pacific  Railroad  Company  covered  the  road  and  franchises,  and 
ik  the  tolls,  incomes,  rents,  issues,  and  profits."  It  provided  that 
until  default  in  payment  of  the  principal  and  interest  of  the  bonds 
secured,  the  company  was  to  operate  the  road  and  use  the  rents 
and  profits  as  if  the  mortgages  had  not  been  made  ;  but  that    in 

1  Clay  r.  Ea  I  Tennessee  &  7a.  R.  It.  2  Williamson  v.  New  Albany,  &c.R  K 
Co.  C  Heisk.  (Term.)  121.  Co.  1  Uiss.  198. 

101 


§  118.]  PROPERTY    COVERED   BY    RAILROAD    MORTGAGES. 

case  of  default,  the  trustees  might  enter  into  possession,  collect 
and  receive  all  tolls  and  freights,  and  operate  the  road  for  the 
benefit  of  the  bondholders.  When  the  trustees  under  the  mort- 
gage took  possession  of  the  road,  they  also  took  possession  of  a 
considerable  sum  of  money  then  in  the  treasurer's  hands;  and 
soon  afterwards  were  summoned  in  a  garnishee  process  by  judg- 
ment creditors  of  the  company,  who  claimed  that  the  funds  were 
subject  to  their  judgment  debt.  This  money  or  debt,  said  the 
court,  was  the  subject  of  garnishment,  unless  the  trustees  had 
the  right  to  take  and  hold  it  by  virtue  of  some  lien  created  by 
the  mortgagees.  Whenever,  by  the  terms  of  a  mortgage  upon 
this  kind  of  property,  either  expressly  or  by  implication,  the  right 
is  reserved  to  a  company  mortgagor,  who  is  the  general  owner,  to 
retain  the  possession  and  use  of  the  mortgaged  property,  by  oper- 
ating the  road,  receiving  the  earnings,  and  applying  them  in 
its  discretion  towards  defraying  the  operating  expenses,  such 
mortgagor  must  be  regarded  as  the  owner  of  all  such  earnings 
acquired  by  the  continuance  of  its  possession,  and  as  invested 
with  the  absolute  right  of  disposal  as  fully  as  any  general  owner 
of  property  enjoys.  This  right  is  wholly  inconsistent  with  the 
exercise  of  any  specific  lien  under  the  mortgage  in  favor  of  the 
mortgage  trustees.1 

A  similar  decision  has  been  made  by  the  Supreme  Court  of 
Tennessee,  which  in  a  recent  case  held  that  under  a  mortgage, 
covering  the  income  of  a  railroad,  the  earnings  of  the  road  in  the 
hands  of  the  treasurer  are  not  subject  to  attachment  when  this  is 
made  subsequently  to  the  registration  of  the  trust  deed.2 

Money  in  the  hands  of  a  station  agent  of  a  railroad  company, 
received  for  tickets  sold  and  freight  collected,  cannot  be  attached 
in  his  hands  by  trustee  process  in  a  suit  against  the  company  by 
a  creditor.  Such  an  agent  is  considered  as  the  corporation  itself 
in  such  business.  There  may  be  a  limit  to  the  application  of  this 
principle.  There  may  be  an  agent  of  such  a  corporation  who  is 
not  invested  with  its  personalty.  But  all  regular  agents  doing 
the  business  for  which  the  corporation  was  organized  must  be 
considered  as  identical  with  the  corporation,  and  their  possession 

i  De  Graff  v.  St.  Paul  &  Pacific  R.  R.  J.  192  ;  5  Cent.  L.  J.  74 ;  Sprague  v.  Steam 

Co.  in    Supreme    Court  of  Minn.  April,  Navigat.  Co.  52  Me.  592. 

1878 ;  5  Reporter,  561  ;  and  see  Merchants'  2  Buck  v.  Memphis  &  Little  Rock  R.  R. 

Bank  v.  Petersburg  R.  R.  24  Pittsburg  L.  Co.  March  T.  1877,  4  C.  L.  J.  430. 
102 


OF   TOLLS    AND   INCOME   OF    A   RAILROAD.  [§  119. 

as  the  possession   of  the   company.1     Therefore  they  cannot  be 
held  as  its  trustees. 

Funds  in  the  hands  of  the  treasurer  of  a  railroad  company  at 
the  time  of  its  making  a  trust  mortgage  of  all  its  property,  and 
embraced  in  the  mortgage,  cannot  be  held  by  creditors  by  means 
of  a  trustee  process,  although  the  mortgage  trustees  have  per- 
mitted the  company  to  use  and  manage  the  road  and  its  other 
property.2 

119.  A  mortgage  of  the  tolls  and  income  of  a  railroad  has, 
however,  been  enforced  against  the  mortgagor  for  the  income 
received  by  him  while  in  possession,  under  a  mortgage  quite 
similar  in  terms  to  those  already  mentioned.3  In  1848  the  legis- 
lature of  Indiana  chartered  a  company  to  make  a  railroad  from 
Richmond  to  New  Castle  in  that  state,  a  distance  of  twenty- 
seven  miles.  In  1851  the  charter  was  amended  so  as  to  enable 
the  company  to  extend  its  road,  and  to  borrow  money  on  a  mort- 
gage of  its  "road,  income,  and  other  property."  In  1852  the 
company  issued  its  bonds  to  the  amount  of  $300,000,  payable  in 
fifteen  years,  and  secured  them  by  a  mortgage  of  "  all  the  present 
and  future  to  be  acquired  property  of  the  said  The  New  Castle 
and  Richmond  Railway  Company  ;  that  is  to  say,  the  first  sec- 
tion of  their  road  from  Richmond  to  New  Castle  as  aforesaid, 
with  the  superstructure,  and  all  rails  and  other  materials  used 
therein,  and  all  rights  therein,  tolls,  and  income,  and  any  rights 
thereto  or  interest  therein,  together  with  the  tolls  or  income  to  be 
had  or  levied  therefrom,  and  all  franchises,  rights,  and  privileges 
of  the  said  The  New  Castle  and  Richmond  Railroad  Company 
of,  in,  to,  or  concerning  the  same."  4  The  mortgage  provided 
that  the  trustees  named  in  the  deed,  upon  default  of  the  company 
to  pay  either  interest  or  principal  of  the  bonds,  might  enter  and 
take  possession  of  the  mortgaged  property,  and  use  the  same,  and 

1  Pettintrill  v.  Androscoggin  R.  R.  Co.     2  lb.  390.     From  the  facts  of  the  case  as 

51  Me.  370;  Fowler  v.  Pittsburgh,  Fort     they  appear  in  these  reports,  it  seems  that 
Wayne  &  Chicago  R.  R.  Co.  35  Pa.  St.  22.     the  decision  is  not  in  accordance  with  gen- 

2  Woodman  v.  York  &  Cumberland  R.     eral  principles  <>r  general  authorities. 

R.  Co.  4")  Me.  207;  and  see  Noyes  v.  Rich,  4  Pullan  v.  Cincinnati  &  Chicago  Air 

52  Me.  115.  Line  R.  B.  Co.  4  Hiss.  35.     "Suchis  the 
•  Pullan  v.Cincinnati  &  Chicago  Air  Line  verbose  language  of  the  deed,"  per  Me- 
lt, i:  f,,.  r,  Bias.  2.",:.   See, also,  8.  C.  i  [b.  Donald,  J. 

85,  and  Rill  /■.  New  Albany,  &c.  Rv.  Co. 

in:; 


§  119.]  PROPERTY    COVERED   BY    RAILROAD    MORTGAGES. 

apply  the  proceeds  of  such  use  to  the  payment  of  the  principal 
and  interest  of  the  bonds  ;  and  that,  if  it  should  become  necessary, 
the  trustees  might  sell  the  mortgaged  property  at  auction,  and 
apply  the  proceeds  to  the  payment  of  the  principal  and  interest. 
Other  mortgages  were  afterwards  made  of  the  whole  line  of  road 
from  Logansport  to  Richmond,  a  distance  of  one  hundred  and 
eight  miles  ;  and  under  one  of  these  mortgages  the  property  was 
sold,  subject  to  the  above  mortgage,  and  was  purchased  by  the 
Cincinnati  and  Chicago  Air  Line  Railroad  Company,  which  took 
possession  of  the  road  on  the  first  day  of  July,  1860.  In  1804  a 
bill  was  filed  in  the  Circuit  Court  of  the  United  States  to  foreclose 
the  mortgage  of  1852,  upon  which  neither  principal  nor  interest 
had  been  paid.  Litigation  upon  this  bill  was  continued  until 
1873,  when  the  case  was  finally  disposed  of.1  During  this  long 
period  much  had  occurred  in  the  progress  of  the  case  ;  many 
orders  had  been  made  by  the  court ;  and,  among  others,  an  inter- 
locutory decree  by  Mr.  Justice  Davis  in  1869,  which  found  that 
the  mortgage  of  1852  covered  the  railroad  and  its  revenues  be- 
tween Richmond  and  New  Castle,  but  not  the  road  or  income  of 
any  other  part  of  the  road  ;  and  that  it  covered  a  ratable  portion 
of  the  rolling  stock,  or  one  fourth  part  of  it,  that  being  the  rela- 
tive length  of  this  portion  of  the  road  to  the  length  of  the  whole 
line  of  road. 

One  of  the  principal  questions  to  be  determined  upon  final  hear- 
ing was  whether  the  mortgage  covered  the  income  which  had  in 
the  mean  time  been  secured  from  this  section  of  the  road.  The 
interlocutory  oi-der  of  Judge  Davis  declared  the  plaintiff  entitled 
to  the  income  from  the  date  of  the  filing  of  the  bill  in  1864.  It 
does  not  appear  why  that  date  was  fixed  upon,  unless  it  was  con- 
sidered that  the  filing  of  the  bill  was  a  demand  for  the  earnings. 
In  1872,  however,  the  master  was  authorized  to  take  an  account 
of  the  earnings  of  the  road  from  the  first  day  of  July,  1860,  when 
the  defendant  company  took  possession  of  the  road ;  and  he  found 
that  from  that  date  up  to  the  beginning  of  the  suit  the  income 
amounted  to  $95,344.08,  and  the  questions  of  the  right  to  the  in- 
come and  of  the  time  for  which  it  should  be  taken  became  of  im- 
portance. The  court  held  that  the  mortgagee  was  entitled  to  the 
income  from  the  time  the  defendant  took  possession  of  the  road  ; 
that  notwithstanding  the  general  rule  that  the  mortgagor,  until 
1  Pulian  v.  Cincinnati  &  Chicago  Air  Line  R.  R.  Co.  5  Biss.  287. 

104 


OF   TOLLS   AND   INCOME   OF    A   RAILROAD.  [§  119. 

some  action  by  the  mortgagee,  is  entitled  to  the  earnings  and 
profits  of  the  mortgaged  property,  it  is  competent  for  the  parties 
to  agree  in  the  mortgage  that  such  earnings  and  profits  shall  be 
subject  to  the  lien,  and  that  under  such  agreement  the  income, 
•when  received,  is  held  by  the  party  receiving  it  in  trust  for  the 
morto-ao-ee.  It  was  claimed  by  the  defence  that  the  defendant 
company  would  certainly  not  be  chargeable  with  any  income  after 
it  had  offered  in  open  court  to  deliver  up  and  surrender  to  the 
plaintiff  the  property  covered  by  the  mortgage.  To  this  the  court 
replied,  that  the  mortgage  took  effect  upon  the  income,  when 
earned  ;  and  as  long  as  the  mortgagor  or  its  assignee  operated 
the  road  and  earned  income,  the  responsibility  growing  out  of 
these  facts  could  not  be  avoided.  The  court  further  suggested, 
but  did  not  decide,  that  although  the  mortgage  in  this  case  cov- 
ered only  the  section  between  Richmond  and  New  Castle,  as  it 
included  the  income  of  this  section,  and  the  company  in  possession 
operated  the  whole  road  as  an  entirety  and  kept  no  separate  ac- 
counts of  that  section,  its  whole  property  and  interest  in  the  road 
might  be  equitably  bound  for  any  decree  for  such  income  that 
might  be  rendered  against  it. 

In  Iowa  it  has  also  been  held  that  it  is  competent  for  a  railroad 
company  to  mortgage  its  future  net  earnings,  although  the  road 
be  not  in  esse  at  the  time  of  the  execution  of  the  mortgage  ;  and 
when  such  earnings  have  accrued  a  creditor  cannot  intercept  them 
in  the  hands  of  the  servants  of  the  company.1 

The  Mississippi  and  Missouri  River  Railroad  Company,  incor- 
porated under  the  laws  of  Iowa,  executed  a  mortgage  of  its  road 
and  property,  together  with  "  all  the  tolls,  incomes,  issues,  and 
profits  to  be  had  from  the  same."  The  mortgage  provided  that 
"  all  of  the  rights  of  the  bondholders  or  trustees  are  subject  to 
the  possession,  control,  and  management  of  the  directors  of  said 
company  until  default."  The  earnings  of  the  road  subsequently 
proved  insuflG  dent  to  pay  the  ordinary  operating  expenses  and 
tli-  interest  on  the  bonds.  A  judgment  creditor  of  the  company 
attempted  to  reach  and  apply  to  the  payment  of  his  demand 
credits  of  the  company  for  freight  and  other  earnings  in  the  hands 
of  several  persons.  The  Supreme  Court  of  Iowa  held,  however, 
that  the  revenues  of  the  company  were  not  subject  to  attachment 
or  execution,  and  that  a  creditor  attempting  so  to  apply  them 

1  Jcssiip  v.  Bridge,  11  Iowa,  572  ;   Dunham  V.  Isett,  15  Iowa,  284. 

1  05 


§  120.]  PROPERTY    COVERED    BY    RAILROAD   MORTGAGES. 

might  properly  be  restrained  by  injunction  on  application  to  a 
court  of  equity.1  This  case  contains  no  discussion  of  the  question, 
and  the  authority  cited,  Galena  £  Chicago  R.  R.  Co.  v.  Menzies? 
is  not  applicable,  because  the  moneys  sought  to  be  held  in  that 
case  were  earned  after  the  mortgagees  took  possession  of  the  road. 

120.  In  estimating  the  earnings  of  a  section  of  a  road  cov- 
ered by  a  mortgage,  the  master  may  make  a  pro  rata  esti- 
mate of  the  earnings  and  expenses  of  the  whole  road,  when 
such  section  has  not  been  operated  separately,  but  as  a  part  of 
the  whole  road,  and  no  separate  accounts  have  been  kept  of  that 
part.  Under  such  circumstances  the  master  could  not  probably 
adopt  any  other  rule,  and  although  the  result  is  not  an  accurate 
one,  it  is  the  best  that  could  be  reached.  A  railroad  company, 
after  neglecting  to  keep  separate  accounts  for  such  section,  cannot 
be  heard  to  complain  of  the  adoption  of  this  rule.3 

1  Dunham  v.  Isett,  15  Iowa,  284.  for  methods  of  estimating  the  net  earn- 

2  26  111.  121.  in^s  of  a  section  of  a  road,  the  rental  value 
8  Pullan   v.  Cincinnati  &   Chicago   Air     of  rolling  stock,  and  the  like. 

Line  R.  R.  Co.  5  Biss.  237.     See  this  case 

106 


CHAPTER  IV. 

MORTGAGES   OF   AFTER-ACQUIRED   PROPERTY. 


I.  Principles    upon    which    after-acquired 
property  may  be  charged,  121-127. 

II.  What  terms  are   sufficient  to  include 
after-acquired  property,  128-141. 


III.  Mortgages  attach  to  after-acquired 
property  subject  to  lien  upon  it  when 
acquired,  142-145. 


I.     Principles    upon  which  after-acquired  Property  may  be 

charged. 

121.  After-acquired  property  at  law.  —  "  It  is  a  common 
learning  in  the  law,"  says  Perkins,1  "that  a  man  cannot  grant 
or  charge  that  which  he  hath  not.'1  Qui  non  hahet,  Me  non 
dat.  Yet  even  at  law  this  rule  is  not  without  some  qualifications. 
Many  instances  of  accessions  and  increase  of  property  passing 
with  a  grant  are  given  in  the  old  books.  Then,  coming  to  the 
doctrine  of  fixtures,  there  is  no  doubt  entertained  as  to  the  prop- 
osition, that  at  law  a  mortgage  of  land  will  pass  all  structures 
and  things  attached  to  it  in  the  nature  of  fixtures  that  may  be 
placed  upon  it  by  the  mortgagor.  But  according  to  the  doctrine 
of  some  cases,  it  is  not  necessary  to  maintain  that  the  rolling  stock 
and  equipments  of  a  railroad  are  parts  of  its  accretions  and  fixt- 
ures, so  as  to  make  the  transfer  good  at  law.  Such  a  mortgage, 
whether  good  at  law  or  not,  is  held  good  in  equity. 

At  law,  an  agreement  to  create  a  lien,  either  upon  property  in 
possession  at  the  time  or  upon  that  which  may  be  acquired  after- 
wards, must  have  reference  to  specific  property,  which  must  be 
definitely  and  intelligibly  pointed  out.  But  this  description  may 
be  made  in  general  terms.  A  mortgage  of  all  lands  which  the 
mortgagor  might  afterwards  acquire  would  create  no  specific  lien 
upon  any  land  ;  but  would  be  merely  an  executory  contract  bind- 
ing upon  the  mortgagor  personally.2 

122.  In  equity  it  is  common  learning  that  a  covenant  for  a  val- 
1  A  Profitable  Book,  tit.  Grants,  §  05.  '-'  See  Winslow  v.  Merchants'  [ns.  <'<>.  i 

Met.  (Mass.)  .■!()('.,  .'Hf,,  per  Shaw,  <\  .1 

107 


§  122.]  MORTGAGES    OF   AFTER-ACQUIRED    PROPERTY. 

uable  consideration  to  convey  particular  lands  is  deemed  a  spe- 
cific lien  upon  those  hinds,  which  will  be  enforced  against  the 
covenantor  and  all  persons  claiming  under  him,  except  purchasers 
for  value,  without  notice  of  such  covenant.1  Equity  considers  that 
done  which  one  has  distinctly  agreed  to  do,  and  is  in  conscience 
bound  to  do.  Equity,  therefore,  treats  a  mortgage  of  things  not 
in  esse  as  a  contract  which  attaches  itself  to  the  things  when 
they  come  into  being,  and  enforces  it.  Upon  the  principle,  that 
upon  every  acquisition  of  property  within  the  description  con- 
tained in  the  mortgage  a  chancellor  would  decree  the  mortgagor 
to  execute  a  mortgage  of  such  subject,  it  will  be  considered  as 
though  it  had  been  done,  and  that  of  every  article  of  property  as 
acquired,  there  was  an  actual  mortgage  then  executed.2  That  a 
contract  by  way  of  mortgage  intended  by  the  parties  to  create 
a  positive  lien  or  charge  either  upon  real  or  personal  property, 
whether  owned  by  the  mortgagor  or  not,  or,  if  personal  property, 
whether  it  is  then  in  being  or  not,  attaches  in  equity  as  a  lien 
or  charge  upon  the  particular  property  as  soon  as  the  mortgagor 
acquires  title  thereto,  is  a  proposition  that  is  almost  universally 
supported  by  recent  authorities,  both  English  and  American.3  A 
conveyance  of  what  does  not  exist  does  not  operate  as  a  present 
transfer  in  equity  any  more  than  it  does  at  law.  The  difference 
is  merely  that  at  law  the  conveyance,  having  nothing  to  operate 
upon,  is  void  ;  while  in  equity  what  is  in  form  a  conveyance  oper- 
ates, by  way  of  present  contract,  to  take  effect  and  attach  to  the 
subject  of  it  as  soon  as  it  comes  into  being  ;  the  agreement  to 
convey  then  ripens  into  an  actual  transfer.4 

A  mortgage  of  after-acquired  property,  being  a  specific  lien, 
and  good  in  equity,  is  preferred  to  a  subsequent  legal  lien  by 
judgment  or  mortgage.5 

1  Fonblanque,  b.  1.  eh.  5,  §  8 ;  Frc-  Dist.  of  Mass.  1876,  14  Nl.  Bank  Reg. 
moult  v.  Dedire,  1  P.  Wms.  429.  469  ;  Dillon   v.  Barnard,   1    Holmes,   386, 

2  Per  .Mr.  Justice  Sharswood,  Philadel-  394  ;  Williamson  v.  N.  J.  Southern  R.  R. 
phia,  Wil.  &  Bait.  R.  R.  Co.  v.  Woelpper,  Co.  29  N.  J.  Eq.  31 1  ;  S.  C.  15  Am.  Railw. 
64  Pa.  St.  366  ;  Covey  f.  Pittsburg,  Fort  R,  572;  Butler  v.  Rahm,  46  Md.  541; 
Wayne  &  Chicago  R.  R.  Co.  3  Phila.  Cook  v.  Corthell,  11  R.  I.  482,  dissenting 
(Pa.)  173,  per  Agnew,  P.  J.  opinion  ;  Morrill  v.  Noyes,  56  Me.  458. 

3  Holroyd  v.  Marshall,  10  H.  L.  191 ;  4  Emerson  v.  European  &  N.  A.  Ry. 
Pennoek    v.    Coe,    23    How.    117;    Mit-  Co.  67  Me.  387. 

chell    v.    Winslow,    2    Story,    630,    644;  5  Stevens  v.  Watson,  4   Abb.    (N.   Y.) 
Brett  v.  Carter,  2  Lowell,  458;  Barnard  v.  App.  Dec.  302;  and  see  D wight  v.  New- 
Norwich  &  Worcester  R.  R.  Co.,  C.  C.  for  ell,  3  N.  Y.  185. 
108 


CHARGING    AFTER-ACQUIRED   PROPERTY.  [§  123. 

In  Louisiana,  a  mortgage  does  not  extend  to  property  acquired 
after  the  date  of  it.1  The  Civil  Code  provides  that  future  prop- 
erty cannot  be  the  subject  of  a  conventional  mortgage.2 

123.  A  railroad  company  having  authority  to  mortgage  its 
corporate  property  and  franchise  may  include  in  the  mort- 
gage after-acquired  property,3  without  exceeding  the  limits  of 
its  power.  "  To  build  a  railroad  requires  a  vast  capital  beyond 
ordinary  means,  and  to  borrow  it,  '  to  carry  into  effect  the  objects 
of  the  corporation,'  demands  all  the  security  within  the  possible 
power  of  the  corporation  to  give.  By  necessity  and  practice,  the 
money  of  the  creditor  capitalist  finishes  and  equips  the  road  ;  and 
slender  indeed  would  his  security  be  which  extends  not  beyond 
the  worn-out  rails  and  rolling  stock  and  equipment  first  in  use, 
and  these,  indeed,  not  often  in  being  at  the  time  of  the  execution 
of  the  mortgage.  In  giving  the  power  to  borrow  and  pledge,  it 
must  be  supposed  the  power  was  given  to  its  fullest  extent  in 
order  to  carry  into  effect  the  objects  of  the  incorporation."4 

A  company  empowered  to  borrow  money  on  the  security  of  its 
property  and  income  is  authorized  to  mortgage  every  species  of 
property  necessary  to  the  operating  of  the  road,  whether  then 
owned  by  it  or  afterwards  acquired.5 

The  Philadelphia  and  Baltimore  Central  Railroad  Company,  in 
pursuance  of  authority  given  by  charter,  executed  a  mortgage  to 
trustees  of  all  their  corporate  property  and  franchises  then  held  or 
thereafter  to  be  acquired,  to  secure  their  bonds,  not  exceeding 
81,o00,000  in  amount.  The  mortgage  also  provided  a  mode  by 
which  the  whole  mortgaged  property  might  be  sold  together  by 
the  trustees,  at  the  request  of  bondholders,  to  the  amount  of 
$100,000.  The  Philadelphia,  Wilmington,  and  Baltimore  Kail- 
road  Company,  in  a  suit  upon  bonds  secured  by  this  mortgage, 
recovered  judgment  for  $122,942.11  against  the  mortgagors; 
and  an  execution  was  issued  which  was  levied  upon  four  locomo- 
tive engines,  a  number  of  cars,  shop  and  quarry  tools,  cross-ties, 
iron  rails,  and  furniture  at  stations.     Woelpper  was  the  holder 

i  State  '•.  New  Orleans  &  Nashville  R.  4  Per  Agnew,  P.  J.,  in  Covey  v.  l'ins- 

11.  Co.  i  Rob.  (La.)  231  ;    State  v.  Mexi-  burg,  Fort  Wayne  &  Chicago  R.  R.  <'...  :: 

can  Gulf  Ry.  Co.  ::  lb.  513.  Phila.  (I'm.)  17:s. 

2  Rev.  Code  1870,  art.  3308.  :'  Ludlow  v.  Hurd,  1   Dis.  (Ohio)  .r>">-' ; 

'  Dunham  v.  Cincinnati,  Pern,  &c.  Ry.  Coopers  '•.  Wolf,  15  Ohio  St, 

Co.  ]    Wall.  254. 

L09 


§  123.]  MORTGAGES   OF   AFTER-ACQUIRED   PROPERTY. 

of  bonds,  secured  by  the  mortgage,  amounting  to  .$7,200.  He 
brought  a  bill  in  equity  against  the  mortgagor  and  the  judgment 
creditor,  joining  also  the  trustees  under  the  mortgage,  praying  a 
decree,  that  the  property  levied  upon  was  a  part  of  the  mortgaged 
premises,  and  as  such  exempt  from  levy  and  sale  under  execu- 
tion ;  and  also  that  the  judgment  creditors  be  restrained  from 
further  levying  the  execution.  The  Philadelphia,  Wilmington, 
and  Baltimore  Railroad  Company  contended  that  the  property 
levied  on  was  not  covered  by  the  mortgage,  because  it  was  ac- 
quired after  the  delivery  of  the  mortgage  ;  but  the  court  held 
otherwise,  and  perpetually  enjoined  them  from  levying  the  execu- 
tion.1 

Authority  given  to  a  railway  company,  by  statute  or  charter,  to 
mortgage  "  all,  or  any  part  of  the  road,  property,  rights,  liberties, 
and  franchises  of  said  company,"  gives  the  company  the  right  to 
include  in  the  mortgage  all  future  accessions  of  the  road.2  "  Prop- 
erty," says  Mr.  Justice  Sharswood,  delivering  the  opinion  of  the 
Supreme  Court  of  Pennsylvania  in  this  case,  "  is  whatever  is  a 
man's  own.  His  future  acquisitions,  though  subject  to  a  contin- 
gency, are  his  own  ;  and  if,  as  we  have  seen,  they  can  be  granted 
or  assigned,  they  are  his  present  property,  valuable  now  to  him, 
because  they  can  be  enjoyed  or  used  by  anticipation.  There  is 
no  refinement  in  this  reasoning,  as  applied  to  the  construction  of 
this  statute.  The  legislature  evidently  intended  it.  Every  law  is 
to  be  interpreted  according  to  its  subject  matter.  This  act  relates 
to  a  railroad  and  its  usual  necessary  appurtenances.  The  words 
are  '  road,  property,  rights,  liberties,  and  franchises,'  including  the 
road  and  all  its  adjuncts.  The  very  objects  of  the  loan,  and  of 
the  mortgage  to  secure  it,  as  expressed  in  the  act,  was  l  for  the 
purpose  of  constructing  and  equipping  the  road.'  It  evidently 
contemplated  a  condition  of  things  in  the  future.  The  bare  road, 
only  then  constructed  in  part,  without  any  rolling  stock  or  equip- 
ments, would  have  been  no  security,  or  a  very  inadequate  one. 
Had  the  road  even  been  fully  equipped  at  the  date  of  the  mort- 
gage, can  it  be  doubted  that  the  legislature  meant  that  it  should 
comprise  everything  subsequently  acquired,  to  replace  old  and 
worn-out  materials,  and  to  maintain  and  keep  up  the  equipment? 
No  money  would  have  been  loaned  on  a  security  daily  deterio- 

1  Philadelphia,  Wil.  &  Bait.  R.  II.  Co.         2  Philadelphia,  Wil.  &  Bait.  R.  R.  Co. 
v.  Woelpper,  64  Pa.  St.  366.  v.  Woelpper,  supra. 

110 


CHARGING   AFTER-ACQUIRED    PROPERTY.  [§  124. 

rating,  and  which  must  eventually  perish  entirely."  The  learned 
judge  quotes  with  approval  the  remarks  of  Mr.  Justice  Agnew, 
already  given  above. 

124.  A  railroad  with  its  franchises  has  sometimes  been 
regarded  as  one  entire  thing,  a  unity  constituting  one  indivis- 
ible whole,  so  that  a  mortgage  of  it  must  necessarily  embrace  all 
property  of  every  description  essential  for  the  use  of  the  road  ; 
and  must  necessarily  attach  to  all  property  subsequently  ac- 
quired for  its  use,  as  an  incident  to  the  principal  thing,  although 
there  be  no  language  in  the  deed  applicable  in  terms  to  such 
property.1 

This  doctrine,  that  the  mortgage  of  a  railroad  as  an  entire 
thing  covers  parts  of  the  thing  which  have  been  acquired  or  con- 
structed after  its  execution,  so  far  as  it  relates  to  such  after-ac- 
quired property  as  actually  becomes  a  part  of  the  original  thing- 
mortgaged,  rests  upon  the  doctrine  of  accession,  which  prevails  in 
ordinary  mortgages  where  improvements  are  made  upon  real  es- 
tate mortgaged  which  becomes  a  part  of  the  realty,  or  where  re- 
pairs are  made  on  an  article  of  personal  property.2 

The  right  of  a  railroad  corporation  to  mortgage  its  after-ac- 
quired property  is  implied  from  any  authority  given  it  to  mort- 
gage its  rights,  franchises,  and  property  as  an  entire  thing;  for,  to 
be  effectual,  the  mortgage  must  embrace  all  such  future  acqui- 
sitions of  the  corporation  as  are  proper  accessories  to  the  thing 
pledged  and  essential  to  its  enjoyment.  In  short,  the  power  to 
mortgage  after-acquired  property  is  implied  in  the  power  to  make 
any  mortgage  at  all.3  "  Whatever  is  added  to  the  original  struct- 
ure becomes  a  part  of  it,  and  cannot  be  severed  from  it;  and  if 
the  security  by  the  mortgage  is  to  continue  to  be  of  any  value 
during  the  period  that  must  transpire  before  the  bonds  become 
due,  it  must  depend  upon  the  implied  covenant  of  the  company 
to  keep  it  in  running  order,  and  thus  earn  the  necessary  sums  to 
discharge  the  accruing  interest,  and,  eventually,  indemnify  the 
creditors  for  the  principal  debt."4 

i  Dinsmore  v.  Racine  &  Miss.  11.  R.  »  Phillips  v.  Winslow,  18  B.  Mon.  (Ky.) 
Co.  L2  Wis.  649,656.  4:$l.     See  Pennock  v.  Coe,  23  How.  117; 

-  Farmers'  Loan  &  Trust  Co.  v.  Com-     Shaww.  Bill,  95  U.  S.  10,  L6. 
mercial    Bank,    n    Wis.    207,    212,   per        4  Ludlow  v.  Hurd,  I    Dis.  (Ohio)  552, 
Paine,  J.  per  Storer,  J. 

111 


§  125.]  MORTGAGES    OF    AFTER-ACQUIRED   PROPERTY. 

125.  This  doctrine  rests  upon  the  authority  of  a  few  cases, 
of  which  Pierce  v.  Emery1  is  perhaps  the  most  important.  The 
Portsmouth  and  Concord  Railroad  was  authorized  by  the  legisla- 
ture of  New  Hampshire  to  issue  bonds  for  a  loan  of  money,  and, 
for  security,  to  make  a  mortgage  to  trustees  of  all  the  property, 
and  all  the  rights,  franchises,  powers,  and  privileges  of  the  corpo- 
ration, and  in  the  mortgage  to  give  the  trustees  power,  on  breach 
of  tin;  condition,  to  sell  the  real  and  personal  estate,  and  all  the 
rights,  franchises,  powers,  and  privileges  named  in  the  mortgage, 
by  a  deed  which  should  convey  to  the  purchasers  all  the  rights, 
franchises,  powers,  and  privileges  which  the  corporation  possessed, 
and  the  use  of  the  railroad,  with  all  its  property  and  rights  of 
property,  for  the  same  purposes  and  to  the  same  extent  that  the 
corporation  could  use  the  same  if  the  deeds  had  not  been  made, 
subject  to  the  same  liability  as  to  the  use  of  the  road  that  the 
corporation  would  have  been  under  if  the  deed  had  not  been 
made.  The  corporation  issued  bonds  and  made  a  mortgage  under 
this  authority,  which  conveyed  the  road  and  all  its  franchises  and 
all  the  personal  property  of  the  company  as  it  was  then  used,  and 
as  Jhe  same  might  thereafter  be  changed  or  renewed.  After  the 
making  of  the  mortgage  the  company  purchased  a  cargo  of  iron 
vails,  and  it  being  subject  to  a  lien  of  the  United  States  for  duties, 
an  agreement  was  made  with  certain  parties  that  they  should  pay 
the  duties  and  that  the  railroad  might  lay  the  iron  on  their  track  ; 
but  that  the  parties  advancing  the  money  might  take  up  the  iron 
and  hold  it  for  security  for  the  money  advanced,  provided  the 
company  did  not  repay  them  within  a  specified  time  the  money 
advanced.  The  court  held  that  when  this  agreement  was  made 
the  iron  was  already  subject  to  the  prior  mortgage,  and  that  all 
that  the  company  could  convey  or  deal  with  was  an  equity  of  re- 
demption subject  to  that  mortgage  ;  that  the  iron  having  passed 
according  to  this  bargain  into  the  possession  of  the  road,  that  the 
lien  for  the  duties  was  gone  and  could  not  be  asserted  as  against 
the  mortgage. 

As  to  the  effect  of  this  mortgage,  the  court  regarded  it  as  in 
substance  a  conveyance,  under  legislative  authority,  of  the  road 
and  corporation,  as  an  entire  thing,  and  that  subsequently  ac- 
quired property  became  a  part  of  it  as  an  incident  and  accession. 

1  32  N.  H.  484.     See,  however,  Boston,  Concord   &  Montreal  R.  E.  Co.  v.  Gilmore, 
37  X.  H.  410,  and  §  168. 
112 


CHARGING   AFTER-ACQUIRED   PROPERTY.  [§  126. 

Upon  a  sale  of  the  property  under  the  mortgage,  all  the  rights 
and  franchises  of  the  corporation  and  the  use  of  the  road  would 
be  transferred  to  the  purchasers,  who  would  hold  them  subject 
to  the  same  liabilities  by  which  the  corporation  was  bound  before 
the  sale.  "  It  is  not  easy  to  see  how  the  original  corporation,  in 
the  hands  of  the  former  corporators,  could,  after  such  a  sale,  have 
any  practical  or  even  legal  and  theoretical  existence.  They  could 
hold  no  property ;  they  could  maintain  no  action,  nor  elect  any 
corporate  officer  ;  these  powers  are  all  rights  and  franchises  of 
the  corporation,  created  and  granted  by  the  act  of  incorpora- 
tion, and  are  all  transferred  and  conveyed  by  the  deed  of  the 
trustees  to  the  purchasers  under  their  sale.  In  some  cases,  after 
the  franchises  of  a  corporation  are  lost  by  forfeiture,  the  corpo- 
ration is  still  held  to  exist  in  contemplation  of  law,  so  far  as  to 
be  capable  of  being  revived  by  a  regrant  from  the  government. 
But  here  the  franchises  would  not  be  forfeited  to  the  state,  but 
transferred  to  the  purchasers  ;  and  the  state  could  not  revive  the 
old  corporation  by  a  regrant  of  the  franchises  which  had  become 
vested  in  the  purchasers.  The  sale  would  in  substance  transfer 
the  road  and  the  corporation  to  the  purchasers."  1 

126.  The  doctrine  is  not  generally  supported  that  after-ac- 
quired property  of  a  railroad  company  passes,  as  incident  to 
the  franchise  to  acquire  property,  by  a  mortgage  of  the  franchises 
and  property  of  the  company  executed  by  lawful  authority.  This 
view  was  strongly  urged  upon  the  court  in  the  case  of  Dinsmore 
v.  Racine  $  Mississippi  Railroad  Company  ; 2  but  the  court, 
after  examining  the  grounds  of  the  doctrine  and  some  of  the 
cases  supporting  it,  declined  to  adopt  it,  and  stated  the  objec- 
tions to  it.  It  is  true  that  at  that  time  there  was  no  statute  in 
force  in  Wisconsin  authorizing  a  railroad  company  to  mortgage  its 
franchises,  and  it  is  admitted  that  a  corporation  would  have  no 
power  to  make  a  mortgage  by  which  property  after  acquired  would 
pass  as  incident  to  the  franchise  to  acquire  property,  except  by 
virtue  of  express  legislative  authority  to  convey  the  franchises  of 
ih«-  corporation.  None  of  the  cases  which  support  this  doctrine 
do  so  upon  the  general  principle  that  a  railroad,  with  its  fran- 
chises and  property,  is  an  indivisible,  entire  tiling,  except  as  it  be- 

1  Per  Chief  Justice  Perley,  delivering  *  12  Wis.  G49. 

the  opinion  <>f  the  court. 

8  113 


§  126.]  MORTGAGES    OF    AFTER-ACQUIRED   PROPERTY. 

comes  so  by  virtue  of  some  special  or  general  legislative  author- 
ity.1 On  general  principles  of  law,  a  railroad  corporation,  with 
its  franchises  and  property,  though  undoubtedly  having  many 
things  peculiar  to  itself,  cannot  be  regarded  as  one  entire  and  in- 
divisible thing.  It  cannot  be  likened  to  a  machine,  or  to  a  vessel. 
If  a  mortgage,  which  does  not  in  terms  include  after-acquired 
property,  can  be  held  to  embrace  property  which  is  personal  in  its 
nature,  and  is  not  attached  to  the  realty  as  fixtures,  without  a 
special  statute  manifesting  an  intention  on  the  part  of  the  legis- 
lature that  such  mortgage  should  pass  the  entire  franchises  and 
property  of  the  company,  and  without  any  general  law  giving  to 
a  mortgage  made  by  a  railroad  company  greater  effect  than  is 
given  to  a  mortgage  by  a  natural  person,  a  revolution  would  be 
worked  in  the  registry  laws.  This  objection  is  forcibly  stated  by 
Mr.  Justice  Cole,  of  the  Supreme  Court  of  Wisconsin  : 2  "  If  the 
mortgage  of  the  Farmers'  Loan  and  Trust  Company  became  a 
prior  lien  upon  the  timber  lands  mentioned  in  this  case,  by  virtue 
of  the  doctrine  of  entirety,  there  could  be  no  safety  in  depending 
upon  the  record.  For  a  person  going  to  buy  these  lands  of  the 
railroad  company  would  find  nothing  upon  the  record  to  apprise 
him  that  they  had  been  mortgaged  to  that  company.  If  he  looked 
into  that  mortgage,  he  would  find  nothing  in  the  description  of 
the  mortgaged  premises  which  related  to  them.  Finding  the  title 
of  record  in  the  railroad  company  unincumbered,  so  far  as  he 
could  see,  he  might  buy  or  take  a  mortgage  upon  the  lands,  trust- 
ing to  the  registry  law.  Thinking  that  the  same  legal  conse- 
quences attached  to  a  mortgage  given  by  a  railroad  company  as 
would  attach  to  one  given  by  a  natural  person,  he  would  find  that 
the  record  was  but  a  snare.  But  still,  if  this  is  the  settled  law  of 
the  land  in  reference  to  railroads  and  railroad  property,  such  a 
person  could  only  complain  of  his  ignorance  and  foll}r.  This 
mortgage  given  the  Farmers'  Loan  and  Trust  Company  was 
made  by  virtue  of  the  general  power  of  the  railroad  company  to 
dispose  of  its  property,  and  not  under  any  law  of  the  state  author- 
izing such  corporations  to  mortgage  their  rights  and  franchises. 
If  the  mortgage  had  been  made  by  an  individual,  within  the  de- 

1  See  Pierce  v.  Emery,   32  N.  H.  484  ;         2  In  Dinsmore  v.  Racine  &  Miss.  R.  R. 
Phillips  v.  Winslow,   18  B.   Mon.   (Ky.)      Co.  supra. 
431  ;  Willink  ;•.  Morris  Canal  &  Banking 
Co.  3  Green  (N.  J.)  Ch.  377. 
114 


WHAT   TERMS   INCLUDE   AFTER-ACQUIRED   PROPERTY.       [§§  127,  128. 

cisions  of  this  court,  it  would  not  have  bound  his  subsequently  ac- 
quired property.  If  the  mortgage  in  this  case  embraced  in  its 
terms  these  timber  lands,  we  might  have  to  consider  whether  it 
did  not  fall  within  the  principle  of  our  decisions  upon  that  sub- 
ject ;  but  it  does  not.  The  mortgage  of  the  Farmers'  Loan  and 
Trust  Company  can  only  hold  these  lands  by  virtue  of  this  doc- 
trine of  entirety.  We  have  endeavored  to  show  that  in  reason, 
and  from  the  nature  of  railroad  property,  there  is  no  ground  for 
saying  that  a  railroad,  with  all  its  rights,  franchises,  and  property, 
real  and  personal,  is  an  indivisible,  entire  thing.  Practically,  we 
believe,  they  are  not  so  regarded.  Mortgages  are  given  upon  the 
personal  property  of  railroads,  or  upon  some  portion  of  it,  or  upon 
some  portion  of  the  real  estate,  or  a  portion  of  the  road.  The 
property  has  been  treated  as  though  it  might  be  separated,  and 
appropriated  to  the  payment  of  debts,  without  destroying  the  in- 
tegrity of  the  company." 

127.  This  doctrine  cannot  be  applied  where  several  mort- 
gages are  given  on  separate  divisions  of  the  road.  The  doc- 
trine is  based  upon  the  ground  that  the  property  acquired  after 
the  making  of  a  mortgage  of  the  property  and  franchises  of  a 
railroad  company  passes  as  an  incident  to  the  franchise  to  acquire 
property.  Such  a  mortgage,  when  duly  authorized,  is  moreover 
regarded  as  a  conveyance  of  the  property  and  franchises  of  the 
company  as  an  entire  thing.  A  division  of  the  franchise  by  a 
mortgage  of  a  part  of  the  road  is  impracticable.1 

II.    What  Terms  are  sufficient  to  include  after-acquired  Property. 

128.  The  word  "  undertaking  "  may  have  the  effect,  whether 
by  itself  or  in  connection  with  other  words,  to  create  not  only  a 
charge  upon  the  property  itself  of  the  corporation,  as  distinguished 
from  its  income  merely,  but  also  a  charge  upon  after-acquired 
property.  The  circumstances  of  the  case  have  much  to  do  in  de- 
termining the  effect  of  the  word.  Thus,  a  steamship  company 
having  power  to  issue  mortgages,  bonds,  or  debentures,  issued 
mortgage  debentures,  charging  "  the  undertaking,  and  all  sums 
of  money  arising  therefrom,"  with  the  repayment  of  the  Loan. 
Before  the  maturity  of  these  obligations,  the  company  was  wound 
up,  and   the   ships  and   other  property  of  the  company  were  sold. 

1  Farmers'  Loan  &  Trust  Co.  v.  Commercial  Bank,  1 1  Wis.  207. 

115 


§§129,130.]       MORTGAGES    OF   AFTER-ACQUIRED   PROPERTY. 

The  court  held  that  the  debentures  were  a  charge  upon  the  prop- 
erty of  the  company,  both  that  which  existed  at  the  time,  and  that 
which  was  afterwards  acquired  ; 1  Giffard,  L.  J.,  saying  :  "  I  have 
no  hesitation  in  saying  that,  in  this  particular  case,  and  having  re- 
gard to  the  state  of  this  particular  company,  the  word  '  undertak- 
ing '  had  reference  to  all  the  property  of  the  company,  not  only 
which  existed  at  the  date  of  the  debenture,  but  which  might  after- 
wards become  the  property  of  the  company.  And  I  take  the 
object  and  meaning  of  the  debenture  to  be  this,  that  the  word 
'  undertaking  '  necessarily  infers  that  the  company  will  go  on,  and 
that  the  debenture  holder  could  not  interfere  until  either  the  inter- 
est which  was  due  was  unpaid,  or  until  the  period  had  arrived  for 
the  payment  of  his  principal  and  that  principal  was  unpaid.  I 
think  the  meaning  and  object  of  the  security  was  this,  that  the 
company  might  go  on  during  that  interval ;  and,  furthermore,  that 
during  that  interval  the  debenture  holder  would  not  be  entitled  to 
any  account  of  mesne  profits,  or  of  any  dealing  with  the  property  of 
the  company  in  the  ordinary  course  of  carrying  on  their  business." 

129.  A  railroad  company  having  the  right  by  its  charter 
to  construct  a  branch  road,  although  not  laid  out  at  the  time 
of  the  original  location  of  the  road,  and  not  then  contemplated, 
and  although  not  laid  out  or  perfected  at  the  time  of  a  mortgage 
of  all  the  lands  which  might  afterwards  be  acquired  for  the  use  of 
the  road,  such  branch  road  and  the  land  acquired  for  it,  and  for 
purposes  connected  with  the  use  of  the  branch  road,  pass  to  the 
mortgagee.  Such  branch  road  might,  under  some  circumstances, 
be  regarded  as  a  legitimate  incident  of  the  main  road,  and  as  nec- 
essary for  its  use  as  are  side  tracks,  shops,  and  engine-houses.2 
If,  however,  the  building  of  the  branch  road  was  not  authorized 
at  the  time  of  making  the  mortgage,  but  wras  authorized  by  a  sub- 
sequent charter  giving  other  persons  as  well  as  the  railroad  com- 
pany the  right  to  become  stockholders,  the  mortgage  will  not 
operate  upon  such  branch  road.3 

130.  When  a  railroad  company  has  the  right  to  change  its 
location,  land  acquired  for  its  new  location  will  be  embraced  in  a 

1  Panama,  New  Zealand  &  Australian         2  Seymour  v.  Canandaigua  &   Niagara 
Royal  Mail  Co.  in  re,  L.  R.  5  Ch.  318-     Falls  R.  R.  Co.  25  Barb.  (N.  Y.)  284. 
322 ;  S.  C.  4  Cox's  Joint  Stock  Cas.  35.  3  Mever  v.  Johnston,  53  Ala.  237,  331. 

116 


WHAT   TERMS   INCLUDE   AFTER-ACQUIRED   PROPERTY.       [§  131. 

mortgage  previously  made  of  all  lands  which  it  might  afterwards 
acquire  for  the  purposes  of  the  road.  Such  land  is  sufficiently 
defined  by  reference  to  the  charter  of  the  road  which  confers  a 
privilege  of  changing  its  location  within  certain  limits.1  To  hold 
that  by  deviating  from  the  route  laid  down  the  road  could  be, 
pro  tanto,  freed  from  the  lien,  would  be  not  only  a  violation  of 
the  terms  of  a  mortgage  covering  all  property  to  be  acquired,  but 
would  be  a  very  dangerous  doctrine,  and  one  contrary  to  public 
policy,  which  is,  to  encourage  the  construction  of  necessary  public 
works.2  The  lien  of  a  mortgage  previously  executed  is  not  im- 
paired by  any  deviation  in  the  route  so  long  as  this  is  kept  within 
the  general  plan  and  direction  authorized  by  the  charter  of  the 
road.3  If  a  company,  after  partially  building  a  portion  of  its  road, 
abandons  it  for  another  route  on  which  the  road  is  actually  built, 
the  lien  of  the  mortgage  will  cover  the  latter  location,  but  not  the 
former,  over  which  the  company  had  only  a  right  of  way  ;  for 
that,  in  consequence  of  the  abandonment,  reverts  to  the  owners  of 
the  soil.4 

A  mortgage  by  a  railway  company  of  its  road  constructed  and 
to  be  constructed,  and  of  all  lands  owned  by  it,  or  which,  it  might 
afterwards  acquire  for  the  purposes  of  its  road,  takes  effect  as  a 
specific  lien  upon  such  lands  as  soon  as  they  are  acquired.  The 
description  of  the  land  is  made  intelligible  and  definite  by  refer- 
ence to  the  charter  of  the  road,  which  defines  the  land  the  com- 
pany may  take.5  It  is  immaterial  whether  the  road  has  been 
definitely  located  at  the  time  of  the  mortgage  ;  when  it  is  located, 
the  lands  acquired  within  the  line  of  its  location  and  for  the  use 
of  the  road  so  located  will  be  embraced  in  the  mortgage. 

131.  The  operation  of  a  mortgage  in  respect  to  future-ac- 
quired property  may  of  course  be  limited  to  such  property 
as  might  be  purchased  with  the  money  obtained  from  the  mort- 
gage loan.  Such  was  claimed  to  be  the  effect  of  certain  mortgages 
of  the  New  Albany  and  Salem  Railroad  Company,  incorporated 
under  the  laws  of  Indiana.  The  mortgage  covered  all  the  present 
and  future  to  be  acquired  property  pertaining  to  the  road  ;  k*  that 

i  Seymour  v  Canandaigua  &   Niagara        8  Meyer  v.  Johnston,  53  Ala.  287,  830. 
Falls  R.  I;.  Co.  25  Barb.  (N.  Y.)  284.  '   Meyer  v.  Johnston,  supra. 

rellw.  Grand  St.  &  Newtown  E.R.        °  Seymour  v.  Canandaigua  &   Niagara 
Co.  67  Barb.  (N.  Y.)  83.  Falls  B.  R.  Co.  25  Barb.  (N.  IT.)  284. 

117 


§  132.]  MORTGAGES    OF   AFTER- ACQUIRED   PROPERTY. 

is  to  say,  their  road,  made  and  to  be  made,  including  the  right  of 
way  and  land  occupied  thereby,  together  with  the  superstructure 
and  tracks  thereon,  and  all  rails  and  other  materials  used  therein, 
or  procured  therefor,  inclusive  of  the  iron  rails  purchased,  or  to 
be  purchased  or  paid  for  with  the  above-described  bonds,  or  the 
money  obtained  therefor,  and  the  machinery  purchased  with  the 
same  ;  bridges,  viaducts,  culverts,  fences,  depot  grounds  and  build- 
ings thereon,  engines,  tenders,  cars,  tools,  materials,  machinery, 
and  all  other  personal  property,  right  thereto,  or  interest  therein, 
pertaining  as  aforesaid,  together  with  the  tolls,  rents,  or  income 
to  be  had  or  levied  therefrom,  and  all  franchises,  rights,  and  priv- 
ileges of  the  said  parties  of  the  first  part  of,  in,  to,  or  concerning 
the  same."  The  Supreme  Court  of  the  United  States,1  however, 
decided  that  the  terms  of  the  mortgage  were  broad  enough  to 
cover  all  property  pertaining  to  the  road,  not  only  that  existing 
at  the  date  of  the  mortgage,  but  also  such  as  was  afterwards  sub- 
stituted for  property  then  existing,  or  was  subsequently  added  by 
the  company,  and  was  in  existence  at  the  time  of  the  foreclosure. 
The  reference  made  in  the  description  to  the  property  which 
might  afterwards  be  purchased  with  the  bonds  issued  was  declared 
not  to  operate  as  a  limitation  of  the  lien  of  the  mortgage  to  such 
after-acquired  property,  but  only  to  remove  any  doubt  that  might 
otherwise  possibly  arise,  whether  the  property  thus  purchased 
would  also  go  to  increase  the  security  offered.  It  was  not  deemed 
of  any  moment  whether  the  rolling  stock  and  machinery  in  use 
by  the  company  at  the  date  of  the  decree  were  acquired  with  the 
proceeds  of  the  bonds  or  with  the  subsequent  earnings  of  the  com- 
pany. 

132.  After-acquired  land,  not  within  the  terms  of  a  mort- 
gage, is  not  covered  by  it.  A  mortgage  of  a  road  and  its  ap- 
purtenances, the  land  on  which  it  is  constructed,  and  which  it 
may  acquire  for  stations,  engine  houses,  shops,  and  other  struct- 
ures, or  upon  which  embankments,  drains,  and  fences  might  be 
built,  does  not  create  any  lien  upon  a  tract  of  woodland  afterwards 
acquired  by  the  company,  situate  seven  miles  from  the  road,  al- 
though such  land  was  purchased  and  used  by  the  company  for  the 
purpose  of  supplying  the  road  with  timber  and  wood.  The  mort- 
gage in  terms  relates  to  land  along  the  line  of  the  road,  in  im- 
l  Shawy.  Bill,  95  U.  S.  10. 

118 


WHAT   TERMS   INCLUDE   AFTER-ACQUIRED   PROPERTY.       [§  133. 

mediate  connection  with  it,  and  necessary  for  the  operation  of  it ; 
and  it  contains  no  apt  and  proper  language  to  embrace  land  re- 
mote from  the  road  and  which  cannot  be  used  for  any  of  the  spe- 
cific purposes  mentioned.1 

A  mortgage  by  a  railway  company  of  its  "  road,  ....  whether 
made  or  to  be  made,  acquired  or  to  be  acquired,  and  all  its  prop- 
erty, real  and  personal,  whether  now  owned  or  hereafter  to  be 
acquired,  used,  or  appropriated  for  the  operating  or  maintaining 
the  said  road,"  is  by  its  terms  restricted  to  property  so  used  or  ap- 
propriated. 2  Lands  acquired  by  the  company,  and  not  thus  used 
or  employed  for  the  purposes  of  the  road,  would  not  come  within 
the  description  of  the  mortgage.3 

133.  After-acquired  personalty  not  within  the  terms  of  the 
mortgage.  —  A  mortgage  conveying  a  "  railroad,  with  its  super- 
structure, track,  and  all  other  appurtenances,  made  or  to  be 
made,"  and  also  the  "  railroad  furniture,  including  engines,  ten- 
ders, cars  of  every  description,  tools,  materials,  machinery,  and 
every  other  kind  of  personal  property  which  shall  be  used  for  oper- 
ating said  railroad,"  does  not  purport  to  grant  property  thereafter 
to  be  acquired  by  the  company,  except  so  far  as  it  becomes  appur- 
tenant to  the  road,  or  is  used  in  it.  Chairs  intended  for  fastening 
down  the  rails  afterwards  acquired,  which  were  never  used  in  its 
construction,  but  were  lying  upon  the  ground  in  heaps,  are  not  ap- 
purtenant to  the  road  or  used  in  operating  it  within  the  terms  of 
the  mortgage,  and  consequently  are  not  covered  by  it.  There  is  no 
language  in  the  instrument  which  purports  to  convey  materials  to 
be  thereafter  acquired  for  the  construction  or  repair  of  the  road.4 

Upon  a  second  trial  of  this  case  additional  evidence  was  intro- 
duced to  show  that  the  intention  of  the  parties  was  to  grant  every- 
thing that  the  company  then  owned  or  might  afterwards  acquire  ; 
and  it  was  claimed  that  the  intention  of  the  parties  should  be  ar- 
rived at,  as  well  from  consideration  of  their  situation  and  the  gen- 
eral nature  and  object  of  railroad  mortgages,  as  from  the  words 
in  the  instrument.     "  But  it  must  be  borne  in   mind.'*   say   the 

1  Dinsmore  v.  Racine  &  Miss.  R.  R.  Co.  mercial  Bank,  11   Wis.    207;  affirmed  in 

12  Wis.  649.  Dinsmore  v.  Racine  &  Miss.  R.  K.  Co.  12 

-  Walsh  v.  Barton,  24  Ohio  St.  28.  Wis.  649;    Farmers'    Loan   &  Trust  Co. 

?-  Seymour  v.  Canandaigua  &  Niagara  v.  Cary,  13  Wis.  110;  Farmers'   Loan  &. 

Falls  K.  i:.  Co.  25  Barb.  (\.  V.)  284.  Trust  Co.  v.  Commercial  Ban*  of  Racine, 

*  Farmers'  Loan  &  Trust  Co.  v.  Com-  15  Wis.  424, 

ll'.l 


§  134.]  MORTGAGES    OF   AFTER-ACQUIRED   PROPERTY. 

court,1  "  that  it  is  not  the  business  of  construction  to  look  outside 
of  the  instrument  to  get  at  the  intention  of  the  parties,  and  then 
carry  out  that  intention,  whether  the  instrument  contains  language 
sufficient  to  express  it  or  not ;  but  the  sole  duty  of  construction  is, 
to  find  out  what  was  meant  by  the  language  of  the  instrument. 
And  this  language  must  be  sufficient,  when  looked  at  in  the  light 
of  such  facts  as  the  court  is  entitled  to  consider,  to  sustain  what- 
ever effect  is  given  to  the  instrument.  And  we  can  see  nothing 
in  the  additional  evidence  now  before  us  which  we  think  ought  to 
change  the  effect  before  given  to  the  mortgages  under  which  the 
appellant  claims." 

Upon  this  principle,  a  mortgage  of  the  Vermont  Central  Rail- 
road Company  of  its  road  and  appurtenances,  together  with  "  all 
other  personal  property  belonging  to  said  company,  as  the  same 
now  is  in  use  by  said  company,  or  as  the  same  may  be  hereafter 
changed  or  renewed  by  said  company,"  was  held  not  to  embrace 
certain  machinery  for  "  burnetizing  "  ties  and  timber  so  as  to  ren- 
der them  more  durable,  which  machinery  was  not  in  existence  at 
the  time  of  the  mortgage,  and  took  the  place  of  nothing  that  was 
therein  specified.  Neither  is  such  machinery  any  part  of  the 
necessary  furniture  or  equipment  of  the  road  ;  and  therefore  al- 
though such  a  mortgage  might  cover  new  engines,  or  cars,  or  the 
like,  procured  to  replace  such  as  had  been  worn  out,  it  could  not 
be  extended  so  as  to  embrace  property  not  used  upon  the  road, 
and  in  no  sense  a  part  of  it.2 

134.  A  land  grant  which  the  corporation  has  no  power  to 
accept. —  But  the  authority  of  a  railroad  company  to  bind  its  fut- 
ure acquisitions  by  mortgage  is  held  to  be  limited  to  such  acqui- 
sitions as  it  then  has  the  power  by  charter  or  by  general  law  to 
make.  Upon  this  ground  it  was  held  that  a  mortgage  by  the  Ala- 
bama and  Tennessee  River  Railroad  Company  did  not  cover  a 
grant  of  lands  subsequently  made  by  the  United  States,  which  the 
company  was  by  special  act  empowered  to  accept,  because  it  had 
no  power  to  accept  such  a  grant  when  the  mortgage  was  given, 
and  the  acquisition  of  such  a  land  grant  was  not  then  contem- 
plated. Although  the  mortgage  in  terms  covered  the  road  and 
the  corporate  franchises,  together  with  "  all  other  property  now 

1  Farmers'  Loan  &  Trust  Co.  v.  Com-         -  Brainerd  v.  Peck,  34  Vt.  496. 
mercial  Bank  of  Racine,  15  Wis.  424,  438. 
120 


WHAT    TERMS   INCLUDE   AFTER-ACQUIRED   PROPERTY.       [§  135. 

owned  and  which  may  be  hereafter  owned  by  the  railroad  com- 
pany," its  operation  was  restricted  to  such  property  as  the  com- 
pany then  had  power  to  receive  and  hold.1 

135.  In  a  mortgage  of  a  land  grant  not  yet  earned,  an  ele- 
ment of  uncertainty  may  be  introduced  by  including  only  a  por- 
tion of  the  grant  without  particularly  describing  that  portion. 
Thus  where  a  railroad  company,  which,  upon  completing  its  road 
according  to  certain  conditions,  would  become  entitled  to  receive 
sixteen  sections  of  land  of  six  hundred  and  forty  acres  each  for 
each  mile  of  road,  included  in  a  mortgage  only  twelve  sections 
per  mile,  amounting  to  thirteen  hundred  and  twenty  sections, 
reserving  four  sections  per  mile,  or  four  hundred  and  forty 
sections  in  all,  in  constructing  their  road,  and  afterwards  trans- 
ferred to  a  contractor  four  hundred  and  seventy-two  sections, 
who  received  the  certificates  in  good  faith  without  any  knowl- 
edge of  their  being  mortgaged  or  pledged  in  any  manner,  it 
was  held  that  he  acquired  a  good  title  to  these  sections,  free 
from  the  incumbrance  of  the  mortgage.2  For  the  mortgage 
bondholders  it  was  contended  that  the  land  grant,  to  the  extent 
of  thirteen  hundred  and  twenty  sections,  became  a  lien  upon  this 
number  of  sections  as  soon  as  the  company  received  them  from 
the  state  ;  and  that  if  there  was  any  difficulty  in  finding  the  bal- 
ance the  contractor  must  meet  it ;  and  therefore  they  demanded 
that  the  contractor  should  surrender  all  the  certificates  held  by 
him,  or,  at  all  events,  that  the  land  should  be  subject  to  sale  under 
the  decree,  until  the  number  of  thirteen  hundred  and  twenty  sec- 
tions had  been  made  good.  Their  claim,  however,  was  not  by 
absolute  grant  or  assignment,  but  through  the  effect  of  the  trust 
deed  operating  by  way  of  estoppel  ;  for  at  the  time  the  deed  was 
executed  the  company  hail  not  received  the  grant  nor  earned  it  by 
the  building  of  the  road.  The  deed  amounted  to  a  covenant  on 
the  pari  of  the  company  that  the  certificates  for  the  land  should 
be  included  in  the  mortgage  when  they  should  come  into  exist- 
ence. lt  This  is  the  doctrine  in  equity,"  said  Mr.  Justice  Bradley, 
delivering  the  opinion  of  the  United  States  Circuit  Court.  "To 
this  the  court  holds  the  company,  and  as  against  it  and  its  as- 
signee, having  notice  of  the  contract,  they  treat  the  certificates  as 

1  Meyer  v.  Johnston,  53  Ala.  2J7,  331.  2  Campbell  v.  Texas*  New  Orleans  K. 

R,  Co.2  Woods, 

121 


§  136.]  MORTGAGES   OF   AFTER- ACQUIRED   PROPERTY. 

if  they  had  been  in  existence,  and  had  been  embraced  in  the  trust 
deeds  when  they  were  executed.     But  the  courts  will  not  over- 
ride other  equities  in  coming  to  this  result.     If  parties  purchased 
the  certificates  in  good  faith,  and  without  notice  of  any  such  estop- 
pel, it  would  be  doing  injustice  to  them  to   deprive  them  of  the 
certificates  so  purchased.     In  the  case  before  us  there  was  a  mar- 
gin of  four  sections  per  mile,  over  and  above  the  amount  or  num- 
ber of  sections  pledged  to  the  bondholders,  which  the  company 
itself  had  a  perfect  right  to  dispose  of.     It  would  be  naturally  sup- 
posed by  parties  dealing  with  the  company,  even  if  they  knew  of 
the  existence  of  the  trust  deeds,  that  so  long  as  the  company  kept 
within  the  line  of  this  margin  in  issuing  additional  certificates,  no 
interference  was  made  with  those  to  which  the  trustees  under  the 
trust  deeds  were  entitled.      If  a  man  sells  me  fifty  bushels  from  a 
lot  of  one  hundred  bushels  of  corn,  and  a  third  person  afterwards, 
with  knowledge  of  the  sale  to  me,  purchase  the  remainder,  and  re- 
moves his  part  of  the  lot,  leaving  my  quantity  undisturbed,  how 
can  he  be  liable  to  me,  even  though  the  seller  should  afterwards 
fraudulently  dispose  of  my  part  to  other  parties  ?  "     The  learned 
judge  was  therefore  brought  to  the  conclusion  that  the  contractor 
was  entitled  to  be  protected  in  the  possession  and  enjoyment  of 
the  certificates  transferred  to  him. 

This  decision,  upon  the  facts  stated,  cannot  be  questioned.  It 
does  not  appear  from  anything  stated  in  the  report  of  the  case 
whether  the  trust  deed  was  duly  recorded  or  not.  If  it  was  re- 
corded, it  is  difficult  to  see  how  the  contractor  could  have  received 
the  certificates  without  notice  of  the  prior  right  of  the  mortgagee 
to  receive  certificates  for  twelve  sections  of  land  per  mile  of  road, 
and,  consequently,  why  he  had  not  a  prior  lien  upon  the  land  to 
the  amount  of  thirteen  hundred  and  twenty  sections. 

136.  A  mortgage  by  a  railroad  company  embracing  all 
property  which  it  may  subsequently  acquire  includes  a  lease 
which  it  afterwards  takes  of  another  railroad.  Upon  the  sub- 
sequent bankruptcy  of  the  corporation,  its  assignees  in  bankruptcy 
cannot  maintain  a  title  to  the  leased  road  as  against  the  mort- 
gage trustees^ 

Lands  which   a  railroad   company  has  contracted   for  after  a 

i  Barnard  v.  Norwich  &  Worcester  11.  14  Nl.  Bank.  R.  469 ;  S.  C.  3  Cent. 
R.  Co.  U.  S.  Circuit  Court  for  Mass.  1876,     L.  J.  608. 

122 


WHAT   TERMS   INCLUDE   AFTER-ACQUIRED   PROPERTY.       [§§  137,  138. 

mortgage  of  all  its  property,  and  has  taken  possession  of  and  used 
for  depot  grounds,  paying  a  portion  of  the  purchase  money,  are 
subject  to  the  mortgage,  and  the  mortgagee,  or  the  purchaser 
under  the  mortgage,  may  compel  the  execution  of  a  conveyance 
upon  the  payment  of  the  balance  of  the  purchase  money.1 

137.  The  enumeration  of  some  articles  excludes  others. — 
The  Vermont  Central  Railroad  Company  having  made  a  mort- 
gage which  by  its  terms  covered  such  personal  property  as  might 
afterwards  be  changed  or  removed  by  the  company,  some  years 
afterwards  made  a  conveyance  apparently  in  confirmation  of  this 
provision  of  the  mortgage,  reciting  that  the  personal  property  ex- 
isting at  the  date  of  it  had  become  diminished  and  impaired  by 
use,  and  other  personal  property  acquired,  which  had  gone  into 
the  possession  of  the  trustees,  and  therefore  this  deed  was  exe- 
cuted to  carry  the  mortgage  into  effect.  The  deed,  however,  was 
"  of  all  the  articles  of  personal  property  acquired  by  the  company 
since  the  date  of  the  mortgage,  consisting,  among  other  things,  of 
the  following,  to  wit ;  "  and  then  enumerated  by  name  several  en- 
gines, and  by  number  several  different  kinds  of  cars.  It  was  held 
that  these  general  words  should  be  construed  as  referring  only  to 
articles  of  the  same  nature  and  kind  as  those  specifically  named, 
and  therefore  did  not  embrace  machinery  for  "  burnetizing  "  ties 
and  timber.2 

138.  Capital  stock  of  another  company.  —  A  mortgage  given 
upon  the  real  and  personal  property  of  a  railroad  corporation  then 
held  or  acquired,  or  thereafter  to  be  held  or  acquired,  covers  the 
capital  stock  of  another  railroad  company,  subsequently  purchased 
by  the  mortgagors  for  the  purpose  of  effecting  a  consolidation  of 
the  roads.3  It  is  not  necessary  to  the  validity  of  such  a  mortgage 
that  it  should  have  been  filed  in  accordance  with  the  provisions 
of  the,  act  concerning  chattel  mortgages.  The  capital  stock  <>l  a 
corporation  is  not  goods  or  chattels  within  the  meaning  ol  the 
statute,  which  has  reference  only  to  pledges  of  personal  property 
of  a  kind  which  is  capable  of  visible  possession.4 

i  Farmers'  Loan  &  Trust  Co.  v.  Fisher,  "Williamson  v.  N.  J.  Southern  R.  R. 
17  Wis.  m.  Co.  26  N.  J.  Eq.  398. 

-  Brainerd  v.  I'eck.s-t  Vt.  490.  4  Williamson  v.  X.  J.  Southern  R.  R. 

Co.  supra. 

123 


§  139.]  MORTGAGES    OF   AFTER-ACQUIRED   PROPERTY. 

139.  Iron  rails  not  laid.  —  A  mortgage  of  "  all  rolling  stock, 
equipments,  and  materials  whatsoever,"  which  may  be  acquired  by 
the  mortgagor,  or  furnished  for  the  use  of  its  road,  embraces  iron 
rails  purchased   by  the  company  for  its  use,  although  still  in  the 
hands  of  its  agents  at  a  distant  port.     The  St.  Paul  and  Pacific 
Railroad  Company  having  made  such  a  mortgage   after  having 
purchased   a  large  amount  of  iron,  by  a  resolution  of  its  board 
of  directors  authorized  one  of  the  mortgage  trustees  to  pledge, 
hypothecate,  sell,  or  dispose  of  the  iron  rails  of  the  company,  then 
in  New  York  or  elsewhere,  or  afterward  to  arrive,  for  such  sums 
and  on  such  terms  as  were  in  his  judgment  best  for  the  interest 
of  the   company,  for  the  purpose   of  raising  money  necessary  to 
meet  past  and  future  estimates  for  construction  account  of  the  ex- 
tension of  the  roads,  and  for  duties,  freights,  and  advances  on  the 
same  account  ;  and  the   trustee  accordingly  disposed  of  the  rail- 
way  iron  principally   to  the  firms  of  Jay  Cook  &  Co.,  and   Jay 
Cook,  McCulloek  &  Co.,  of  both  of  which  firms  this  trustee  was 
a  member.     He  was  also  the  acting  man  of  the  mortgage  trus- 
tees, and  the  construction  agent  of  the  company.     An  action  was 
brought  against  the  company,  the  mortgage  trustees  and  others,  to 
restrain  this  fraudulent  diversion  of  the  iron,  and  it  was  held  that 
the  action  could  be  maintained,  and  that  an  injunction  restrain- 
ing the  completion  of  the  transfer  of  the  property  was  properly 
granted.1     The  iron  rails  became  a  part  of  the  security  in  equity 
against   persons   buying  them  with  notice  of  the  facts,  or  without 
paying  value  for  them.     To   that  extent  the  bondholders  had  an 
equitable  right  that  they  should  be  used  only  for  the  purposes  for 
which  they  had  been  bought,  and  that  was,  to  construct  the  rail- 
road track  with   them.     The    firms,  of  which   the   trustee  was  a 
member,  are  chargeable  with  knowledge  of  the  mortgage,  and  the 
equitable  lien  of  it  upon  this  property,  and  therefore  they  could 
acquire  no   title  as  against  the  bondholders.     A    portion  of  the 
iron  was  transferred  by  Jay  Cook,  McCulloek  &  Co.,  to  the  secre- 
tary of  the  navy  of  the  United  States,  in  part  to  secure   a  debt 
of  the  firm  and  in  part  to  secure  an   advance  made  at  the  time. 
Accordingly,  it  was  held  that  the  transfer  was  invalid  so  far  as  it 
secured  a  prior  indebtedness,  because  the   secretary  relinquished 
nothing  for  the  transfer,  and  took  no  better  title  than  the  firm 
themselves  had  ;  but  so  far  as  the  transfer  secured  an  advance 
i  Weetjon  v.  St.  Paul  &  Pacific  R.  R.    Co.  4  Hun  (N.  Y.),  529. 

121 


MORTGAGES   ATTACH,    SUBJECT    TO   LIENS.       [§§  140-142. 

made  at  the  time  the  transaction  was  valid,  being  without  notice 
of  the  equity  of  the  bondholders  and  for  an  actual  consideration 
paid. 

140.  Fuel.  —  The  Androscoggin  Railroad  Company  having 
been  authorized  to  extend  its  road,  and  to  make  a  mortgage  of 
the  property  then  owned  by  both  the  new  and  old  portions  of  the 
road,  and  "  all  the  property  of  said  extension  subsequently  to  be 
acquired,"  and  having  executed  the  mortgage  accordingly,  after- 
wards purchased  with  the  earnings  of  the  whole  road  wood  for 
the  use  of  the  whole  road.  It  was  held  that  such  wood  was  not 
property  of  the  extension  afterwards  acquired,  within  the  terms 
of  the  mortgage,  and  was  therefore  subject  to  attachment  at  the 
suit  of  a  creditor  of  the  company.1 

141.  Office  furniture,  suitable  in  kind  and  of  a  necessary 
amount,  provided  for  the  use  of  the  employees  of  the  company 
in  the  performance  of  their  daily  duties,  as  well  as  for  the  use 
of  the  directors  of  the  company  to  transact  their  business,  is 
embraced  in  a  mortgage  of  a  road,  its  franchises  and  property 
then  owned  or  thereafter  to  be  acquired.  Such  property  is  at- 
tached to  or  incident  to  the  road  itself.  The  mortgagee  may, 
upon  default,  take  possession  of  it  ;  or  if  a  judgment  creditor  at- 
tempts to  levy  an  execution  upon  it,  the  mortgagee  may  have  the 
proceedings  enjoined,  especially  if  it  appears  that  the  other  mort- 
gaged property  would  be  insufficient  to  pay  in  full  the  mortgage 
debt.- 

III.  Mortgages   attach  to  after-acquired  Property  subject  to  Liens 
upon  it  tvhen  acquired. 

142.  A  mortgage  of  after-acquired  property  can  only  at- 
tach to  such  property  in  the  condition  in  which  it  comes 
into  the  mortgagor's  hands.3  —  If  it  is  already  subject  to  mort- 
gages or  other  liens,  the  general  mortgage  does  not  displace  them 
although  they  may  be  junior  in  point  of  time.     They  only  attach 

i  City  of  Bath  v.  Miller,  53  Me.  308.  Co.  1  Wall.  254  ;  Galveston   It.  B.  Co.  ?•. 

Sec  §  113.  Cowdrey,  11  lb.  159;  United  States  v.  N. 

a  Ludlow  r.  Bard,  l    Dis.  (Ohio)  552.  0.   B.   B.   Co.  12  Wall.  36*2;    Willink  v. 

See  §111.  Morris  Canal  &  BankingCo.  3  Green (N. 

■:  Dunham  v.  Cincinnati,  Pern,  fr.liv.  J.)Ch.  377. 

1 25 


§  143.]  MORTGAGES   OF   AFTER-ACQUIRED   PROPERTY. 

to  such  interest  as  the  mortgagor  acquires.  Therefore,  a  mechan- 
ic's lien  for  work  done  and  materials  furnished  in  building  for  a 
railroad  company  docks,  wharves,  and  piers  upon  a  branch  road, 
acquired  after  the  making  of  the  mortgage,  takes  precedence  of 
the  mortgage.  It  is  immaterial  in  such  case  that  the  property- 
was  acquired,  not  by  grant  but  by  obtaining  a  controlling  interest 
in  the  capital  stock  of  another  road  which  owned  the  property.1 
When  in  this  case  the  decree  of  the  chancellor  was  signed,  which 
established  the  lien  of  the  mortgage  upon  the  branch  road,  a 
mechanic's  lien  had  been  acquired  on  the  premises,  which  related 
back  to  the  commencement  of  the  building,  and  was  entitled  to 
priority  over  all  conveyances,  mortgages,  or  incumbrances  subse- 
quent thereto.  This  lien  was  not  displaced  by  the  chancellor's 
decree,  which,  in  the  absence  of  fraud,  could  be  effective  only  to 
bring  under  the  mortgage  the  lands  of  the  branch  company,  sub- 
ject to  such  liens  as  were  lawfully  acquired,  while  the  legal  estate 
was  in  that  company.2 

143.  When  a  railroad  company  holds  property  under  a  con- 
ditional sale,  as  for  instance  when  railroad  iron  has  been  an- 
nexed under  an  agreement  that  it  shall  be  laid  upon  a  designated 
part  of  the  track,  and  that  upon  payment  it  shall  become  the  prop- 
erty of  the  company,  but  that  the  title  should  not  pass  until  such 
payment,  a  subsequent  mortgagee  of  the  road  with  notice  of  the 
agreement  acquires  no  interest  in  it.3  There  is  in  such  case  no 
difficulty  in  tracing  and  identifying  the  iron.  It  is  unlike  a  case 
where  bricks,  or  nails,  or  other  materials  are  used  in  the  construc- 
tion of  a  house,  and  are  so  incorporated  with  the  building  that  they 
cannot  be  separated  and  traced.  It  is  rather  analogous  to  the 
case  of  a  house  or  a  fence  set  on  land  of  another,  with  his  assent, 
and  under  an  agreement  that  the  house  or  fence  should  remain 
the  personal  property  of  the  original  owner.  The  agreement  of 
the  parties  would  supersede  the  general  rule  of  law,  and  prevent 
the  house  or  fence  becoming  annexed  in  law  to  the  land.  The 
mortgagee  with  notice  stands  in  the  same  position  as  the  company 
itself.  Notice  to  the  trustees  under  the  mortgage  is  notice  to  the 
bondholders.     It  would  be  impracticable  to  affect  the  bondholders 

1  Williamson  v.  N.J.  Southern  Hy.  Co.  March  T.  1878,  affirming  the  Chancellor's 
28  N.J.  Eq.  277,  298;  29  lb.  311.  decree  upon  this  point .     29  N.  J.  Eq.  311. 

-  S.  C.  in  Court  of  Errors  and  Appeals,         3  Haven  v.  Emery,  33  N.  H.  66. 

126 


MORTGAGES   ATTACH,    SUBJECT    TO   LIENS.  [§  144. 

with  actual  notice  in  any  way  except  through  the  trustees,  through 
whom  the  bondholders  claim. 

But  a  verbal  agreement  of  the  mortgagor  that  after-acquired 
property  shall  remain  the  property  of  the  vendor  until  it  is  paid 
for,  does  not  constitute  a  lien  within  the  rule  that  a  mortgagee 
takes  after-acquired  property  cum  onere  ;  at  any  rate  such  is  the 
law  when  the  property  is  personal,  and  a  statute  makes  an  agree- 
ment that  the  vendor  shall  retain  the  title  invalid  against  creditors 
without  notice  unless  the  instrument  be  in  writing  and  recorded.1 

144.  The  mortgage  does  not  cover  property  afterwards  ac- 
quired through  fraud.  —  Mortgagees  of  a  railway  who  have  taken 
possession  of  the  road  under  their  mortgage  cannot,  however,  re- 
tain possession  of  rolling  stock  which  the  company  has  acquired 
by  fraud.     The  Lehigh  Car  Manufacturing  Company  contracted 
to  deliver  to  the  New  Jersey  Southern  Railroad  Company  one 
hundred  box  cars  at  a  stipulated  price,  payable  in  the  notes  of  the 
company  secured  by  its  first  mortgage  bonds.     A  part  of  the  cars 
was  delivered  to  the  company,  which  gave  its  notes  and  certain 
bonds  called  consolidated  first  mortgage  bonds  as  security.     The 
manufacturers  having  been  informed  some  time  afterwards  that 
the  bonds  were  not  first  mortgage  bonds,  inquired  of  the  secretary 
of  the  company  about  them,  and  was  assured  that  they  were  such 
bonds.     Some  two  or  three  months  afterwards  the  manufacturers 
having  discovered    that   the   bonds   received  were  worthless    de- 
manded a  return  of  the  cars,  which  was  refused.     The  company 
was  shortly  afterwards  declared   insolvent,  and  possession  of  its 
property  was  delivered  to  the  trustees  of  the  first  mortgage  bond- 
holders.    The  trustees  insisted  that  the  car  company  could  not 
be  permitted  to  rescind  the  contract  of  sale  and  retake  the  cars, 
because  they  did  not  elect  to  do  so  within  a  reasonable  time.     The 
car  company,  on  the  other  hand,  claimed  that  they  were  defrauded 
in  the  transaction,  and  that  they  took  advantage  of  the  fraud  in 
due  season  after  the  discovery  of  it.     It  appeared  that  the  consoli- 
dated  bonds  were  issued  under  a  scheme  stalled   by  Jay  Gould, 
then   the   president  of   the  road,  for  the  consolidation  of  several 
roads,  and  the  retiring  of  the  existing  bonds  of  the  road  by  issuing 
the  Dew  consolidated  bonds.     The  consolidation  of  the  roads  never 
took  plaee,  and  the  bonds  issued  to  I  he  ear  company  were  worth - 
1  Taylor  v.  Burlington,  Cedar  Rapids  &  Minn.  I>'v.  n  West.  Jur.  337. 

L27 


§  144.]  MORTGAGKS    OF   AFTER-ACQUIRED    PROPERTY. 

less.  The  chancellor  held  that  although  the  property  passed  by 
the  sale,  which  was  not  void  but  only  voidable  at  the  election  of 
the  vendor,  the  latter  might  rescind  the  contract  of  sale  at  any 
time  after  the  discovery  of  the  fraud,  so  long  as  no  innocent  third 
party  had  acquired  an  interest  in  the  property,  and  the  position  of 
the  railroad  company  was  no  worse  by  reason  of  the  delay.  The 
sale  was  regarded  as  conditional,  the  conditions  being  that  the  se- 
cnritv  provided  for  in  the  contract  should  be  given  simultaneously 
with  the  delivery  of  the  property.  The  car  company  did  not  lose 
its  property  in  the  cars  by  delivering  them  to  the  railroad  com- 
pany, because  the  cars,  being  built  according  to  specifications,  the 
vendee  had  the  right,  as  incident  to  the  contract,  to  require  a  de- 
livery of  them  for  the  purpose  of  inspection  and  examination.1 

Moreover,  the  car  company  having  been  induced  to  part  with 
the  cars  by  fraudulent  means,  could,  within  a  reasonable  time, 
disaffirm  the  sale  and  reclaim  the  property.  Although  delivery 
had  been  made,  no  title  would  pass  until  with  knowledge  of  the 
fraud  it  elected  to  ratif}^  and  confirm  the  sale,  or  third  persons  act- 
ing upon  the  supposition  of  the  ownership  by  the  fraudulent  vendee 
had,  in  good  faith  and  for  a  valuable  consideration,  acquired 
rights  therein.  But  the  mortgagee  in  this  case  occupied  no  better 
position,  either  at  law  or  in  equity,  than  the  railroad  company. 
When  he  took  possession  of  the  road  under  the  mortgage,  he  took 
possession  of  the  cars  as  part  of  the  equipment;  but  he  paid  no 
consideration  for  them,  and  parted  with  nothing  on  the  faith  of 
the  supposed  ownership  of  the  property  by  the  mortgagor.  Al- 
though a  mortgage  of  property  afterwards  to  be  acquired  attaches 
to  the  property  as  soon  as  it  comes  into  the  possession  of  the 
mortgagor,  this  is  only  in  accordance  with  the  principle  of  equity, 
that  what  ought  to  be  done  is  considered  as  done.  Unless  the 
mortgagee  has  an  equitable  right  to  hold  such  property,  such  as 
would  be  the  ground  of  a  decree  of  specific  performance,  a  court 
of  equity  will  not  aid  him  in  enforcing  the  contract. 

Upon  appeal  from  the  decree  of  the  chancellor,  Mr.  Justice 
Depue,  delivering  the  opinion  of  the  Court  of  Errors  and  Appeals, 
upon  this  part  of  the  case,  said :  "  The  decree  of  the  chancellor, 
recognizing  the  rights  of  the  car  company  as  superior  to  those  of 
the  complainant,  is  consistent  with  principles  of  equity.  But  the 
relief  granted  is,  in  my  judgment,  too  circumscribed.     The  de- 

1  Williamson  v.  N.  J.  Southern  R.  R.  Co.  23  N.  J.  Eq.  277. 
128 


MORTGAGES   ATTACH,    SUBJECT    TO    LIENS.  [§  144. 

cree  merely  directs  that  the  complainant  deliver  up  the  said  cars 
to  the  car  company.  The  complainant  obtained  the  possession  of 
the  cars  when  he  was  put  in  possession  of  the  railroad,  in  January, 
1874.  He  has  ever  since  operated  the  road  with  the  rolling  stock, 
including  these  cars,  practically  under  the  supervision  of  the 
Court  of  Chancery.  In  February,  1876,  the  car  company  made 
a  demand  of  the  complainant  for  the  return  of  the  cars,  and  on 
the  5th  of  February,  1876,  began  an  action  of  replevin  in  the  Su- 
preme Court  of  this  state  against  the  complainant  individually, 
for  the  recovery  of  the  same.  Under  the  writ  issued  in  that  suit, 
the  sheriff  of  Hudson  County  seized  the  said  cars,  and  held  them 
in  his  possession  until  they  were  redelivered  to  the  complainant, 
pursuant  to  the  ninth  section  of  the  act  concerning  replevin.1  The 
car  company  was  made  a  party  to  this  suit,  by  the  second  supple- 
mental bill  filed  on  the  20th  of  September,  1876,  and  the  pros- 
ecution of  the  replevin  suit  was  enjoined.  Under  the  proof  in 
this  case,  the  car  company  would  have  succeeded  in  its  action  of 
replevin,  and  the  damages  recoverable  would  have  been  the  value 
of  the  property  at  the  time  of  demand  made,  and  damages  for 
its  detention  therefor ;  and  the  complainant,  after  judgment  paid, 
would  have  been  entitled  to  be  reimbursed  the  amount  thereof 
out  of  the  trust  funds  in  his  hands.2 

"  The  decree  does  not  do  complete  justice  to  the  car  company, 
nor  does  it  give  the  complainant  adequate  indemnity.  In  sub- 
stance,  it  merely  releases  the  hold  of  the  court  upon  the  property, 
and  directs  the  complainant  to  redeliver  it.  The  car  company, 
having  brought  its  action  of  replevin,  and  the  cars  having  been 
redelivered  to  the  defendant  in  that  suit,  it  is  not  bound  to  accept 
a  return  of  its  property  in  satisfaction  of  its  cause  of  action.  In 
replevin,  where  the  property  has  been  redelivered  to  the  defend- 
ant, the  plaintiff  may  have  its  value  adjudged  to  him  absolutely  as 
part  of  his  damages,  and  the  defendant  cannot  discharge  himself 
from  the  payment  of  such  damages  by  a  return  of  the  property.3 
To  Leave  the  Litigation  open  in  the  suit  at  law,  with  a  result  that 
c;m  be  foreseen,  is  not  advisable  at  this  stage  of  the  ca'se,  A 
Court  of  Equity  always  aims  to  make  its  determination  com- 
plete, if  it  1m;  possible.    That  may  be  done  in  this  instance,  within 

i  Revision  1877,  p.  '.m.  8  Field  v.  Post,  9  Vroom  (N.J.),  346. 

-  Frazier  v.  Fredericks,   i  Zab.  (N'.J.) 
162. 

9  L29 


§  145.]  MORTGAGES    OF   AFTER-ACQUIRED   PROPERTY. 

the  scope  which  this  litigation  has  been  permitted  to  assume.  Nor 
would  it  be  proper  relief  to  remit  the  car  company  to  the  position 
of  the  holder  of  the  bonds  of  the  railroad  company  to  the  amount 
of  the  bonds  deliverable  under  the  original  contract.  The  bonds 
which  the  car  company  should  have  received  had  then  a  market 
value  which  they  probably  do  not  now  possess.  Having  taken 
proper  steps  to  rescind  the  contract  of  sale  on  justifiable  grounds, 
the  legal  result  of  the  rescission  was,  to  revest  the  property  in  the 
company,  with  a  right  to  maintain  an  action  for  its  recovery,  in 
which  the  measure  of  redress  was  the  value  of  the  property  at  the 
time  of  the  demand  made  on  the  complainant,  and  damages  there- 
after. The  Court  of  Chancery  having  assumed  jurisdiction  of 
that  controversy,  should  grant  the  same  measure  of  relief  as 
would  have  been  obtained  in  the  action  at  law.  To  that  end  the 
decree  of  the  chancellor  should  be  modified,  and  a  decree  made  in 
favor  of  the  car  company  for  the  value  of  the  cars  in  the  com- 
plainant's possession  at  the  time  of  demand  made  on  him  at  what 
they  were  then  worth,  with  interest  on  such  valuation,  to  be  asr 
certain ed  by  a  reference  to  a  master."  1 

145.  Junior  mortgagees  of  railroad  property  who  by  ex- 
press terms  take  subject  to  a  prior  mortgage  of  the  road, 
constructed  or  to  be  constructed,  all  property  then  owned  by 
the  corporation  or  afterwards  to  be  acquired  for  the  use  of  the 
road,  cannot  claim  such  after-acquired  property  as  against  the 
prior  mortgagees.  The  junior  mortgagees  are  not  in  such  case 
bond  fide  purchasers  for  value  without  notice.2  And  in  like  man- 
ner the  holders  of  a  chattel  mortgage  upon  the  rolling  stock  of  a 
railroad,  who  had  previously  as  agents  of  the  railroad  company 
actively  participated  in  negotiating  a  prior  mortgage  of  the  road 
and  all  its  after-acquired  property,  cannot  claim  to  avoid  such 
prior  mortgage  in  respect  to  after-acquired  rolling  stock,  or  ques- 
tion its  validity  because  it  was  not  filed  as  a  chattel  mortgage.3 

1  Williamson  v.  N.  J.  Southern  R.  R.  3  Benjamin  v.  Elmira,  Jefferson  &  Can- 
Co.  29  N.  J.  Eq.  311,  321.  andaigua  R.  R,  Co.   54  N.  Y.  675 ;  S.  G. 

2  Stevens  v.    Watson,  4  Abb.  (N.  Y.)  49  Barb.  441. 
App.  Dec.  302. 

130 


CHAPTER  V. 


LEGAL   NATURE   OF   ROLLING    STOCK   OF   RAILROADS. 


I.  After-acquired  rolling  stock   is  subject 
to  mortgage,  146-153. 

II.  Rolling    stock    regarded   as    fixtures, 
154-163. 


III.  Rolling  stock  regarded    as   personal 
property,  164-170. 

IV.  Constitutional    and  statutory   provi- 
sions regarding  rolling  stock,  171-187. 


146.  Introductory.  —  Questions  as  to  the  legal  nature  of  the 
property  of  railroad  companies  embraced  under  the  general  term 
of  rolling  stock  have,  within  the  last  few  years,  frequently  come 
before  our  courts,  both  state  and  federal,  for  determination.  These 
questions  are  presented  in  various  forms.  More  frequently  than  in 
any  other  way  they  have  arisen  in  the  endeavors  of  the  general  cred- 
itors of  such  corporations  to  attach,  or  levy  executions  upon,  rolling 
stock  as  personal  property,  when  either  the  companies  themselves 
or  their  mortgage  creditors  have  claimed  that  such  property  is  a 
part  of  the  realty,  or,  at  least,  is  an  incident  of  the  franchise,  so 
that  it  cannot  be  separated  by  seizure  and  sale  under  execution. 
Sometimes  the  inquiry  has  been  whether  mortgages  which  do  not 
in  terms  apply  to  the  rolling  stock  nevertheless  embrace  it  as  fixt- 
ures of  the  realty ;  or  whether  mortgages  which  in  terms  do  apply 
to  such  property  are  effectual  when  recorded  only  as  real  property 
mortgages.  Again,  the  subject  has  been  presented  in  another  as- 
pect, under  laws  of  taxation  which  have  not  expressly  or  impliedly 
defined  the  status  of  this  species  of  property. 

When  rolling  stock  is  mortgaged  in  connection  with  the  real 
property  of  a  railroad  company,  the  effect  of  the  mortgage  may  be 
considered  as  between  the  parties  themselves,  or  as  between  the 
mortgagees  and  subsequent  purchasers  or  judgment  creditors.  Be- 
tween the  parties  themselves,  no  question  as  to  the  proper  regis!  ra- 
tion of  the  mortgage;  can  arise;  ;  and,  generally,  the  only  question 
between  them  respecting  such  property  is  whether  the  morl 
covers  after-acquired  property  of  this  kind.  The  same  question 
may  arise  between  the  mortgagees  and  subsequent  purchasers  or 

LSI 


§  147.]  LEGAL   NATURE   OF   ROLLING   STOCK. 

incumbrancers.  Quite  different  principles,  however,  are  applica- 
ble to  the  determination  of  this  inquiry  from  those  that  apply  to 
the  contentions  of  the  same  parties  whether  such  property  is  a  fixt- 
ure —  and,  therefore,  a  part  of  the  realty  itself  —  or  is  personalty. 
Upon  this  part  of  the  subject  there  is  great  confusion  and  con- 
tradiction of  authority.  In  many  states  there  are  now  statutory 
enactments  which  attempt  to  dispose  of  the  vexed  questions;  but 
these  enactments  are  as  diverse  as  were  the  decisions  of  the  courts. 
It  is  of  little  consequence,  however,  whether  the  statutes  fix  the 
status  of  such  property  as  realty  or  personalty,  so  long  as  they 
afford  a  fixed  rule  for  the  guidance  of  the  parties. 

Discriminating,  therefore,  between  the  different  aspects  of  the 
subject  presented  by  these  legal  questions,  the  first  proposition  to 
be  considered  is  :  — 

I.    After-acquired  Rolling  Stock  is  subject  to  Mortgage. 

147.  A  mortgage  of  a  railroad  afterwards  to  be  built,  and  of 
the  rolling-stock  and  other  property  appurtenant  to  such 
road,  attaches  to  the  road  and  the  rolling  stock  as  they  are  built 
and  acquired.  Such  a  mortgage  is  a  lien  superior  to  that  of  a 
subsequent  mortgage,  ma^de  after  the  road  has  been  completed 
and  equipped  ;  and  in  like  manner  superior  to  a  judgment  lien 
which  has  afterwards  attached  to  such  property.1  Although  the 
mortgage  may  have  been  "  given  before  a  shovel  had  been  put 
into  the  ground  towards  constructing  the  railroad,  yet,  if  it  as- 
sumed to  convey  and  mortgage  the  railroad  which  the  company 
was  authorized  by  law  to  build,  together  with  its  superstructure, 
appurtenances,  fixtures,  and  rolling  stock,  these  several  items  of 
property,  as  they  came  into  existence,  would  become  instantly  at- 
tached to  and  covered  by,  the  deed  and  would  have  fed  the  estop- 
pel created  thereby.  No  other  rational  or  equitable  rule  can  be 
adopted  for  such  cases.  To  hold  otherwise  would  render  it  neces- 
sary for  a  railroad  company  to  borrow  money  in  small  parcels,  as 
sections  of  the  road  were  completed,  and  trust  deeds  could  safely 
be  given  thereon.  The  practice  of  the  country  and  its  necessities 
are  in  coincidence  with  the  rule."  2 

1  Pennoek  v.  Coe,  23  How.   117;    Gal-  ton  &  Springfield  R.  R.  Co.  6  Biss.  529, 

veston  R.  R.  Co.  v.  Cowdrey,   11   Wall.  535. 

459,  481  ;    Dunham  v.  Cincinnati,   Peru,  2  Galveston  R.  R.  Co.  v.  Cowdrey,  11 

&c.  Ry.  Co.   1  Wall.  254,  266;     Meyer   v.  Wall.  459,  481,  per  Bradley,  J. 
Johnson,  53  Ala.  237,  324;    Scott  v.  Clin- 

132 


AFTER-ACQUIRED,    SUBJECT   TO   MORTGAGE.  [§  148. 

148.  Coe  v.  Pennock.1 —  One  of  the  earliest  cases  involving  a 
judicial  construction  of  a  mortgage  of  the  rolling  stock  of  a  rail- 
road company  was  decided  by  the  Circuit  Court  of  the  United 
States  in  1857,  and  two  years  afterwards  by  the  Supreme  Court.2 

The  Cleveland,  Zanesville,  and  Cincinnati  Railroad  Company 
executed  a  mortgage  of  all  its  present  and  subsequently  acquired 
property,  including  engines,  tenders,  cars,  and  all  other  personal 
property.  The  railroad  was  in  course  of  construction,  and  only  a 
small  portion  of  it  was  finished  at  the  time  of  the  mortgage.  This 
contained  a  covenant  that  the  money  borrowed  should  be  applied 
to  the  construction  and  equipment  of  the  road.  The  rolling  stock 
was  afterwards  levied  upon  by  holders  of  subsequent  mortgage 
bonds.  Whereupon  the  trustees  under  the  first  mortgage  filed  a 
bill  to  restrain  a  sale  under  the  execution.  The  Circuit  Court  ren- 
dered a  decree  perpetually  enjoining  the  sale,  and  this  decree  was 
affirmed  by  the  Supreme  Court.  Mr.  Justice  Nelson,  delivering 
the  opinion  of  the  Supreme  Court,  said  :  "  If  we  are  at  liberty  to 
determine  this  question  by  the  terms  and  clear  intent  of  the  agree- 
ment of  the  parties,  it  will  be  found  a  very  plain  one.  The  com- 
pany have  agreed  with  the  bondholders  (for  the  mortgagee  repre 
sents  them)  that,  if  they  will  advance  their  money  to  build  the 
road  and  equip  it,  the  road  and  equipments  thus  constructed,  and 
as  fast  as  constructed,  shall  be  pledged  as  a  security  for  the  loan. 
This  is  the  simple  contract  when  stripped  of  form  and  verbiage ; 
and,  in  order  to  carry  out  this  intent  most  effectually,  and  with  as 
little  hazard  as  possible  to  the  lender,  the  company  specially  stip- 
ulate that  the  money  thus  borrowed  shall  be  faithfully  applied  in 
the  construction  and  equipment  of  the  road.  And  in  further  ful- 
filment of  the  intent,  the  company  agree  that,  in  case  of  default 
in  payment  of  principal  or  interest,  the  bondholders  may  enter 
and  take  possession  of  the  road,  and  run  it  themselves,  by  their 
agents,  applying  the  net  proceeds  to  the  payment  of  the  debt." 
The  bondholders,  he  continued,  have  fulfilled  their  part  of  the 
agreement  by  advancing  the  money  on  the  faitli  of  the  security; 
and  Hi"  question  is  whether  there  is  any  rule  of  law  or  principle 
of  equity  that  denies  them  the  benefit  of  the  security  they  con- 
tracted for.  After  examining  the  arguments  against  giving  effect 
to  a  mortgage  of  after-acquired  property,  in  conclusion,  he  says  that. 

i  f,  Am.  Law  Keg.  27;   2   Redf.  Am.        -  Sub  nom.   Pennock  '••  <'<"•,  -'.■!   How. 
Ry.  Cases,  667.  117. 

L33 


§  149.]  LEGAL   NATURE    OF   ROLLING   STOCK. 

the  court  is  satisfied  that  the  mortgage  attached  to  the  future 
acquisitions,  as  described  in  it,  from  the  time  they  came  into  ex- 
istence. 

149.  It  is  not  essential  that  the  rolling-stock  should  be  es- 
pecially mentioned  in  the  mortgage  in  order  that  it  may  pass 
by  it.  A  mortgage  of  a  road  and  its  fixtures,  together  with  "  all 
other  property  now  owned  and  which  may  be  hereafter  owned 
by  the  railroad  company,"  embraces  cars,  locomotives,  and  other 
rolling  stock  purchased  by  the  company  from  time  to  time  after  the 
making  of  the  mortgage.1  In  like  manner  a  mortgage  of  an  entire 
line  of  railroad,  "with  all  the  revenue  or  tolls  thereof,"  was  held 
to  cover,  not  only  the  line  of  the  road,  but  all  the  rolling  stock 
and  fixtures,  whether  movable  or  immovable,  essential  to  the  pro- 
duction of  tolls  and  revenues.2  The  same  view  was  expressed 
by  the  district  judge  of  the  United  States  for  the  District  of  In- 
diana,3 as  to  the  effect  of  a  mortgage  by  a  railway  company  of 
"  all  the  present  and  future  to  be  acquired  property  of  the  com- 
pany," "  together  with  the  tolls  or  income  to  be  had  or  levied 
therefrom."  The  latter  clause  seemed  to  be  regarded  as  more  de- 
cisive than  the  former  that  the  rolling  stock  of  the  road  was  in- 
cluded. Applying  the  maxim,  that  whosoever  grants  a  thing  is 
supposed  also,  tacitly,  to  grant  that  without  which  the  grant  itself 
would  be  of  no  effect,4  the  tolls  and  income  being  expressly  mort- 
gaged, the  rolling  stock,  which  is  essential  to  the  production  of 
tolls  and  income,  must  be  included  in  the  grant.  "  On  a  fore- 
closure the  lands,  superstructures,  and  fixtures  might,  indeed,  be 
sold  ;  but  the  tolls  and  income  could  not  be.  Besides,  the  deed  of 
trust  provides  another  remedy  to  the  mortgagees  in  case  of  a  de- 
fault by  the  mortgagors  —  the  very  remedy  which  the  complain- 
ant is  now  seeking  through  a  receiver.  It  provides  that  in  case 
of  a  default  the  trustees  may  enter  and  take  possession  of  the 
mortgaged  property,  and  use  and  operate  the  same,  and  apply  the 
proceeds  thereof  to  the  payment  of  the  interest  and  principal  of 
the  bonds  intended  to  be  secured  by  the  mortgage.  Now,  in  pur- 
suing this  remedy,  of  what  avail  would  all  the  other  property  be 

1  Meyer  v.  Johnston,  53  Ala.  237,  332.  4  Cuicunque  aliquis  quid  concedit,  con- 

2  State  of  Maryland  v.  Northern  Cen-     cedere  videtur  et  id  sine  quo  res  ipsa  esse 
tral  Ry.  Co.  18  Md.  193.  non  potuit.     11   Rep.  52  ;    Broom's  Leg. 

8  Pullan  v.  Cincinnati  &  Chicago  Air     Max.  479. 
Line  R.  R.  Co.  4  Biss.  35,  43. 
134 


AFTER-ACQUIRED,   SUBJECT    TO   MORTGAGE.  [§  150. 

if  the  rolling  stock  cannot  be  used  ?  Nay,  could  the  remedy  be 
pursued  at  all  without  the  use  of  the  rolling  stock  ?  The  reason 
of  the  rule  —  that,  when  a  man  grants  a  tract  of  land  in  the  cen- 
tre of  a  larger  tract  owned  by  him,  he  also  grants,  by  implication, 
a  right  of  way  into  it  —  fully  applies  to  the  case  in  question  ;  and 
it  strongly  applies  to  the  mortgage  of  tolls  and  income." 

A  mortgage  of  a  "  road  and  its  franchise "  was,  however,  re- 
garded by  the  Supreme  Court  of  Vermont  as  excluding  from  its 
operation  the  rolling  stock,  and  other  personal  chattels  that  go  to 
make  up  the  usual  and  necessary  equipment  and  furnishing  of 
the  road,  but  not  so  affixed  to  the  land  as  to  partake  of  the  char- 
acter of  realty.1 

If  rolling  stock  be  regarded  as  an  accession,  in  the  nature  of  a 
fixture  to  the  road,  it  passes  by  a  mortgage  of  the  road  without 
express  mention  ;  and  it  is  then  immaterial  whether  it  be  in  ex- 
istence when  the  mortgage  is  given,  or  be  afterwards  acquired. 

150.  Many  authorities,  without  going  to  the  extent  of  hold- 
ing that  engines  and  cars  are  fixtures,  regard  them  as  so  in- 
dispensable to  the  operation  of  a  railroad  that  they  make  a 
distinction  between  the  rolling  stock  and  other  kinds  of  personal 
property,  in  respect  to  the  rule  that  property  not  in  esse  cannot 
be  conveyed.  The  rolling  stock  of  a  railroad  is  regarded  as  so 
appurtenant  to  the  road,  that  when  the  company  makes  a  mort- 
gage of  its  road  and  franchise,  it  has  a  present  existing  interest 
in  the  rolling  stock  to  be  acquired  for  its  use  sufficient  to  uphold  a 
grant  of  it  as  incident  to  the  road.  Their  title  to  the  road  and 
franchise  is  the  foundation  of  an  interest  in  the  cars  and  engines 
to  bo  acquired  for  its  use.2  A  lien,  moreover,  may  be  created 
without  a  grant.  A  contract  intended  as  a  grant,  or  one  stipu- 
lating  the  making  of  a  grant  at  a  future  time,  may  be  upheld  in 
equity  as  a  present  lien. 

The  York  and  Cumberland  Railroad  Company,  in  1851,  issued 
bonds  secured  by  a  mortgage,  in  trust,  of  its  road   and  franchise, 

ether  with  all  "cars,  engines,  and  furniture  that  may  have 
been  or  may  be  purchased  by  said  company."  Some  two  years 
afterwards  the  company   purchased  an  engine  and  certain   cars, 

1  Miller  t\  Rutland  &  Washington    It.         2  Morrill  v.  NoycH,  56  Mo.  158,  471. 
R.  Co.  3C  Vt.  452. 


l:;. 


§  151.]  LEGAL   NATURE   OF   ROLLING    STOCK. 

which  they  subsequently  mortgaged.  In  1859,  a  suit  in  equity 
was  commenced  in  behalf  of  the  bondholders  under  the  first  mort- 
gage to  compel  the  execution  of  the  trust,  and  a  receiver  was  ap- 
pointed, who  took  possession  of  all  the  property  of  the  company, 
including  the  engine  and  cars  which  were  the  subject  of  the  sec- 
ond mortgage,  and  which  were  in  daily  use  upon  the  road.  The 
second  mortgagee,  after  a  demand  for  their  surrender,  brought  an 
action  of  trover,  and  obtained  leave  of  court  to  prosecute  it.  It 
was  held  that  the  lien  of  the  existing  mortgage  attached  to  the 
rolling  stock  as  soon  as  it  was  purchased  and  placed  upon  the  road, 
and  that  the  second  mortgagee  acquired  no  title  which  he  could 
maintain  against  the  former  mortgage.1 

This  decision  might  have  been  placed  upon  the  ground  that  the 
mortgagee  of  the  rolling  stock  had  notice  of  the  prior  mortgage 
in  which  this  property  was  also  included  ;  and  in  that  case  the 
question  of  the  proper  registry  of  the  first  mortgage  would  not 
be  raised,  for  the  knowledge  of  the  second  mortgagee  of  the  ex- 
istence of  such  mortgage  would  be  equivalent  to  a  due  record  of  it. 

A  mortgage  of  a  railroad,  "  together  Avith  the  superstructure 
and  tracks  thereon,  and  all  rails  and  other  materials  used  there- 
on or  procured  therefor,  and  engines,  tenders,  cars,  tools,  mate- 
rials, machinery,  contracts,  and  all  other  personal  property " 
then  owned  by  it,  or  in  future  to  be  acquired,  was  held  to  include 
cars,  wheels,  firewood  obtained  for  the  use  of  the  engines,  and 
coal  for  the  use  of  a  machine-shop,  as  things  incident  and  indis- 
pensable to  the  use  and  enjoyment  of  the  principal  thing  con- 
veyed.2 

151.  A  mortgage  attaches  to  rolling  stock  subject  to  the 
liens  existing  upon  it  when  it  is  acquired.  —  The  New  Orleans 
and  Ohio  Railroad  Company,  having  made  a  mortgage  covering 
all  future-acquired  property,  afterwards  purchased  of  the  United 
States  certain  locomotives  and  cars,  for  which  it  gave  a  bond  stipu- 
lating that  the  United  States  should  have  a  lien  upon  the  prop- 
erty for  the  purchase  money,  and  that  the  company  should  not 
part  with  it  without  written  consent  until  payment  of  the  price. 
The  trustee  for  the  bondholders  claimed  that  the  mortgage  upon 

1  Morrill  v.  Noyes,  56  Me.  458.  2  Phillips  v.  Winslow,  18  B.  Mon.  (Ky.) 

431,  448. 

136 


AFTER-ACQUIRED,    SUBJECT   TO   MORTGAGE.  [§  152. 

the  road,  being  prior  in  date  to  the  bond,  attached  to  the  property 
as  soon  as  purchased,  and  displaced  any  junior  lien.  "  This,  we 
apprehend,"  said  Mr.  Justice  Bradley,  delivering  the  opinion  of 
the  court,1  "  is  an  erroneous  view  of  the  doctrine  by  which  after- 
acquired  property  is  made  to  serve  the  uses  of  a  mortgage.  That 
doctrine  is  intended  to  subserve  the  purposes  of  justice  and  not 
injustice.  Such  an  application  of  it  as  is  sought  by  the  appellants 
would  often  result  in  gross  injustice.  A  mortgage  intended  to 
cover  after-acquired  property  can  only  attach  itself  to  such  prop- 
erty in  the  condition  in  which  it  comes  into  the  mortgagor's  hands. 
If  that  property  is  already  subject  to  mortgages  or  other  liens,  the 
general  mortgage  does  not  displace  them,  though  they  may  be 
junior  to  it  in  point  of  time.  It  only  attaches  to  such  interest  as 
the  mortgagor  acquires  ;  and,  if  he  purchase  property  and  give  a 
mortgage  for  the  purchase  money,  the  deed  which  he  receives  and 
the  mortgage  which  he  gives  are  regarded  as  one  transaction,  and 
no  general  lien  impending  over  him,  whether  in  the  shape  of  a 
general  mortgage,  or  judgment,  or  recognizance,  can  displace  such 
mortgage  for  purchase  money.  And  in  such  cases  a  failure  to 
register  the  mortgage  for  purchase  money  makes  no  difference.  It 
does  not  come  within  the  reason  of  the  registry  laws.  These 
laws  are  intended  for  the  protection  of  subsequent,  not  prior,  pur- 
chasers and  creditors.  Had  the  property  sold  by  the  government 
to  the  railroad  company  been  rails,  as  in  the  case  of  the  Galves- 
ton Railroad  Company  v.  Cowdrey,2  or  any  other  material  which 
became  affixed  to,  and  a  part  of,  the  principal  thing,  the  result 
would  have  been  different.  But,  being  loose  property,  susceptible 
of  separate  ownership  and  separate  liens,  such  liens,  if  binding 
on  the  railroad  itself,  are  unaffected  by  a  prior  general  mortgage 
given  by  the  company,  and  paramount  thereto.  In  the  case  before 
us  the  United  States,  at  the  time  of  making  the  sale,  reserved  a 
lien  on  the  property,  and  imposed  a  condition  of  non-alienation 
until  the  price  should  be  paid.  Taken  altogether,  the  transaction 
amounts  to  a  transfer  sub  modo,  and  the  lien  must  be  regarded 
as  attaching  to  the  property  itself,  and  as  paramount  to  any  other 
Liens  arising  from  the  prior  act  of  the  company." 

152.   In  Alabama  it  is  held  that  rolling  stock  so  appertains 

i  United  States  v.  New  Orleans   R.  K.        a  ll  Wall.  459. 
Co.  12  Wall,  362,  3G4. 

137 


§  152.]  LEGAL  NATURE   OF   ROLLING   STOCK. 

to  a  railroad  as  to  become  subject,  on  this  ground,  to  a  mortgage 
of  it  and  its  after- acquired  property,  whenever  such  property  is 
acquired.  Yet  the  rolling  stock,  as  personal  chattels  not  identified 
with  the  realty,  does  not  become  released  from  the  liens  under 
which  the  company  has  acquired  it.1  The  Alabama  and  Tennessee 
River  Railroad  Company,  in  1852,  executed  a  mortgage  of  its  road 
then  constructed  and  to  be  constructed,  and  of  all  other  property 
then  owned  and  which  might  thereafter  be  owned  by  the  company, 
together  with  its  tolls  and  income.  Some  years  afterwards  this 
road  was  united  with  other  roads,  and  a  new  name  was  given  to 
the  consolidated  roads,  and  other  mortgages  were  made  by  these. 
Upon  a  foreclosure  of  a  subsequent  mortgage  it  was  held  that 
the  lien  of  the  first  mortgage  extended  to  the  cars,  locomotives, 
and  other  personal  movable  property  appertaining  to  the  railroad  ; 
and  that  this  lien  was  not  restricted  to  so  much  of  the  rolling  stock 
as  remained  of  what  the  company  owned  at  the  time  of  the  con- 
solidation. If  the  Alabama  and  Tennessee  River  Railroad  Com- 
pany had  then  ceased  to  exist,  the  lien  of  the  mortgage  would  not 
have  attached  to  any  rolling  stock  acquired  afterwards,  because 
the  acquisition  would  not  have  been  made  by  the  mortgagor  ;  but, 
as  the  court  held  that  this  company  continued  its  existence  after 
the  consolidation  under  a  new  name,  it  necessarily  follows  that 
the  mortgage  given  by  it  embraced  the  rolling  stock  held  at  the 
time  of  the  foreclosure  to  the  same  extent,  or  in  the  same  propor- 
tion, that  it  embraced  the  railroad  itself.2 

In  1873  the  receivers  were  authorized,  pending  the  foreclosure 
suit,  to  buy  a  large  quantity  of  rolling  stock,  and  for  that  purpose 
to  issue  certificates  and  make  them  a  prior  lien  upon  the  road  and 
property.  Some  part  of  the  rolling  stock  so  purchased  was  al- 
ready upon  the  road,  and  in  use  by  it  under  contracts  and  leases  ; 
and  it  was  contended  by  some  of  the  mortgage  creditors  that  such 
rolling  stock,  although  not  paid  for  by  the  company,  became  sub- 
ject to  the  liens  of  the  mortgages  when  put  upon  the  mortgaged 
road ;  and,  moreover,  that  even  the  new  rolling  stock  purchased 
by  the  receivers,  and  put  upon  the  road  by  them  under  authority 
of  the  court,  became  subject  to  the  liens  of  the  mortgages  in  pref- 
erence to  the  liens  authorized  by  the  court  in  the  order  for  pur- 
chase.    But  the  court  held  that  the  lien  authorized  by  the  court 

1  Meyer  v.  Johnston,  53  Ala.  237,  324,         2  Meyer  v.  Johnston,  53  Ala.  332. 
353. 

138 


REGARDED   AS    FIXTURES.  [§§  153,  154. 

could  not  be  superseded  or  lessened  by  the  mortgages  ;  that  while 
it  is  true  that  when  a  railroad  company  which  has  executed  sev- 
eral successive  mortgages  of  its  road,  equipments,  and  appurte- 
nances, purchases  and  puts  upon  its  road  rolling  stock  which  is  then 
free  from  all  liens,  this  property  so  appertains  to  the  road  as  to 
become  subject  to  the  mortgages  which  have  priority,  according  to 
the  date  of  their  execution  ;  yet  such  property  does  not  become 
so  identified  with  the  realty  by  being  placed  upon  it  that  it  is  re- 
leased from  the  liens  attaching  to  it  when  it  was  acquired.  Liens 
upon  the  rolling  stock  existing  upon  it  when  it  comes  into  the 
mortgagor's  possession  remain  binding  upon  it,  and  superior  to 
those  of  the  mortgage  existing  at  the  time  upon  the  railroad.1 

153.  It  may,  therefore,  be  regarded  as  judicially  settled, 
with  little  or  no  divergence  of  opinion,  that,  in  equity,  a  mortgage 
of  a  railroad  will  be  held  to  apply  to  after -acquired  rolling  stock, 
and  other  personal  property,  if  the  terms  of  the  mortgage  cover 
such  future  acquisitions  ;  with  the  qualification,  however,  that  the 
mortgage  will  attach  to  such  property  subject  to  the  liens  existing 
upon  it  when  it  comes  into  the  hands  of  the  mortgagor. 

II.  Rolling  Stock  regarded  as  Fixtures. 

154.  There  are  many  considerations  why  rolling  stock 
should  be  regarded  as  strictly  of  the  nature  of  fixtures. — 
It  is  fitted  to  the  gauge  of  the  road  and  adapted  particularly  for 
use  upon  it.  Without  it  the  road  is  not  only  worthless  to  the 
company,  but  it  ceases  to  be  of  use  to  the  public,  which  is  one  of 
tin-  purposes  for  which  the  company  was  chartered.  The  fart 
that  the  rolling  stock  is  not  actually  attached  to  the  land,  but  may 
be  transferred  to  another  road  and  used  upon  that  equally  well,  is 
not  decisive  against  its  being  a  fixture.  The  manner  and  degree 
of  annexation  to  the  realty  is  only  one  element  in  determining 
whether  any  article  of  personal  property  is  a  fixture  or  not ;  while 
the  intention  of  the  parties  with  reference  to  making  it  a  per- 
manent accession  to  the  freehold,  and  its  adaptation  to  the  use 
and  purpose  for  which  it  is  attached,  are  considerations  of  equal 
importance,  at  least,  in  determining  the  question.  These  consid- 
erations are  to  be  unitedly  applied. 

1  Meyer  v.  Johnston,  58  Ala.  852. 

L39 


§§  155,  156.]        LEGAL   NATURE   OF   ROLLING   STOCK. 

155.  The  actual  fastening  of  a  personal  article  to  the  free- 
hold is  not  essential  to  its  becoming  a  fixture.  —  "  If  a  billiard- 
table  be  fastened  to  the  floor  so  as  to  be  conceded  a  fixture,  would 
not  the   balls   and   cues  pass  also?     A  bucket  in  a  well  may  be 
detached,  and  it  is  movable,  running  from  top  to  bottom  of  the 
well,  yet  it  is  a  fixture  by  common  consent.     A  shuttle  in  a  loom 
is  thrown   from  place  to  place  by  the  motive  power  of  the  ma- 
chinery, yet  it  is  an  essential  part  of  the  machine."     In  the  cases 
mentioned,  the  billiard-balls,  the  bucket,  and  the  shuttle  are  fixt- 
ures solely  because  they  are  essential  to  the  use  of  the  property 
of  which  they  are  parts,   although  disconnected  parts.     In  like 
manner  the  cars  and  engines  of  a  railroad  are  essential  to  the  use 
of  the  road.     "  The  right  to  buy  and  own  rolling  stock  is  a  fran- 
chise, and   can  only  be  exercised  as  an  accessory  to  the  operation 
of  a  railroad.     Any  buying   or  selling  of  cars,  engines,  and  the 
like,  by  the  company,  for  the  mere  purpose  of  speculation,  would 
be  unauthorized  and  illegal.     Here,  then,  is  a  consideration  show- 
ing that  a  company  intends  the  rolling  stock  to  be  used  only  for 
the  road,  or,  in  other  words,  to   become  a  permanent  accession  to 
the  real  estate  of  the  company.     The  intention  of  the  owner,  the 
use  for  which  the  property  was  designed,  the  connection  between 
the  road  and  the  cars,  and  the  essential  relation  between  them  for 
the  purpose  of  revenue,  all  combine  to   declare  the  rolling  stock 
real  estate."  1 

156.  It  is  not  necessary,  as  to  rolling  stock,  to  record  a 
mortgage  of  it  as  a  chattel  mortgage.  —  One  of  the  latest  cases 
supporting  this  view  came  before  the  United  States  Circuit  Court 
for  the  District  of  Kansas.2  The  mortgage  covered  the  rolling 
stock  and  other  property  appertaining  to  the  defendant  railroad 
company.  The  mortgage  had  been  duly  recorded  as  a  real  estate 
mortgage,  but  not  as  a  chattel  mortgage.  Certain  judgment 
creditors  of  the  mortgagor  levied  upon  the  rolling  stock  embraced 
in  the  mortgage  ;  and  the  question  was  whether  their  rights  were 
prior  to  those  of  the  mortgagees.  Mr.  Justice  Miller,  of  the  Su- 
preme Court  of  the  United  States,  delivered  the  opinion  of  the 

1  Minnesota  Co.  v.  St.  Paul  Co.  2  Wall.         2  Farmers'  Loan  &  Trust  Co.  v.  St.  Jo- 
609;  note,  p.  648,  on  rolling   stock  as  a     seph  &  Denver  City  Ry.  Co.  3  Dill.  412. 
fixture,  being   an   extract  from   brief   of 
Mr.  Carpenter. 

140 


REGARDED   AS   FIXTURES.  [§  156. 

court,  Judge  Dillon  concurring  :  "  After  having  taken  time  to  con- 
sider the  question  involved  in  this  case,  my  judgment  is  that  it  was 
not  necessary,  as  to  the  rolling  stock,  to  record  the  instrument  as 
a  chattel  mortgage.    As  to  this  it  is  sufficient,  even  as  to  creditors, 
that   the   mortgage  was   duly  registered  as  a  mortgage  of  real  es- 
tate.    In  my  opinion  rolling  stock  and  other  property  strictly  and 
properly  appurtenant  to  the  road  is  part  of  the  road  and  covered 
by  the  mortgage  in  question,  which  in  terms  embraces  rolling  stock. 
The  cases  are  conflicting  upon   the  point  of  the  nature  of  rolling 
stock ;  but,  considering  the  peculiar  character  of  a  railroad,  the 
true  principle  is  the  one  above  stated.     Under  the  provisions  of 
this  mortgage  a  different  principle  would  apply  to  fuel  or  other 
property  personal  in  its  nature,  and  which  is  used,  or  is  such  as  is 
commonly  used,  for  other  than  railway  purposes.     Such  property 
would  be  subject  to  the  levy,  and  not  be  held  by  the  mortgage." 
The  opinion  of  the  court  does  not   clearly  indicate  whether  the 
registry  was  considered   sufficient  on   the  ground  that  the  rolling 
stock  is  a  fixture,  or  on  the  ground  that  such  property  does  not 
come  within  the  purview  of  the  statute   relating  to  the  record  of 
chattel  mortgages ;  but  it  would  seem  to  be  on  the  former  ground. 
The  La  Crosse  and  Milwaukee  Railroad   Company,  in  1856, 
mortgaged   the  western  division  of  its  road,  from   Portage  to  La 
Crosse,  a  distance  of  105  miles  ;  and  in  the  following  year  mort- 
gaged its  eastern  division,  from  Milwaukee  to  Portage,  a  distance 
of  95  miles,  to  secure  other  bondholders ;  and  again,  in  the  next 
following  year,  executed  a  mortgage  of  the  whole  line  of  its  road 
from  Milwaukee  to   La  Crosse  to  secure  another  issue  of    bonds. 
Each  mortgage  embraced  "  all  and  singular  the  locomotive  en- 
gines and   other  rolling  stock,  and  all  other  equipments  of  every 
kind  and  description  which  have  already  been  or  may  hereafter  be 
procured  for  or  used  on  said  road  ;  "  and  each  was  in  terms  made 
subject  to  all  prior  mortgages  of  the  road.     The  rolling  stock  was 
purchased  with   the    funds   of  the  company,  and  was    placed   and 
used  on  the  entire  lino  of  the  road,  embracing  both  divisions,  and 
no  division  of  it  was  ever   made   between  the   two   divisions.      It. 
was  held,  therefore,  that  the  mortgages  operated  upon  all  the  roll- 
ing stock  in  the  order  of  their  dates;  and    that   the  rtgage  of 

the  western  division,  being   the  oldest,  had   priority  of  lien  upon 
the  entire  rolling  stock  of  the  company.1 

'  Minnesota  Co.  v.  St.  Paul  Co.  6  Wall.  742. 

1  II 


§  157.]  LEGAL   NATURE    OF   ROLLING   STOCK. 

It  is  possible,  however,  for  a  railroad  company  owning  the 
whole  of  a  long  road,  and  all  the  rolling  stock  upon  it,  to  assign 
certain  cars  and  engines  to  particular  divisions  of  the  road,  so  that 
such  rolling  stock  would  attend  such  divisions  and  pass  by  sepa- 
rate mortgages  of  them.  Whether  in  any  particular  case  a  rail- 
road company  has  divided  its  rolling  stock  and  mortgaged  it  in 
this  way  is  a  question  of  intention.1 

157.  In  Illinois  it  was  settled  that  rolling  stock  is  a  fixture 
which  passes  by  a  mortgage  of  the  road,2  by  several  cases  decided 
as  early  as  1860  and  1861.  As  a  part  of  the  realty,  such  prop- 
erty was  not  subject  to  the  laws  relating  to  mortgages  of  personal 
chattels.  Locomotives  and  cars  in  and  upon  the  road,  or  intended 
for  immediate  use  upon  it,  could  not  be  taken  on  execution  by  a 
creditor  and  severed  from  the  road  so  as  to  change  them  into  per- 
sonalty. If  this  could  be  done,  say  the  court,  in  one  case,  houses, 
fences,  timber,  fruit-trees,  and  almost  every  description  of  im- 
provements might  in  the  same  way  be  converted  into  personalty.3 
In  all  the  cases  it  seemed  to  be  taken  as  an  unquestioned  doctrine 
that  the  rolling  stock  passed  as  a  portion  of  the  realty. 

Thus  stood  the  law  on  this  subject  until  the  Constitution  of 
1870  4  provided  that  "  rolling  stock,  and  all  other  movable  prop- 
erty belonging  to  any  railroad  company  or  corporation  in  this 
state,  shall  be  considered  personal  property,  and  shall  be  liable  to 
execution  and  sale  in  the  same  manner  as  the  personal  property  of 
individuals,  and  the  general  assembly  shall  pass  no  law  exempt- 
ing any  such  property  from  execution  and  sale."  But  even  this 
provision  is  declared  by  the  Circuit  Court  of  the  United  States 
not  to  change  the  rule  that  a  mortgage  made  by  a  railroad  com- 
pany, covering  all  after-acquired  property,  includes  rolling  stock, 
if  the  mortgage  be  given  before  the  rights  of  execution  creditors 
attach.5  Such  a  mortgage  seizes  the  property  or  operates  on  it 
by  way  of  estoppel  as   soon  as  it  comes  into  existence,  and  is  in 

i  Minnesota  Co.  v.  St.  Paul  Co.  2  Wall,  more  a  part  of  the  road  than  is  the  furni- 

609.  ture  of  a  house  a  part  of  a  house.     San- 

2  Palmer  v.  Forbes,  23  111.  301,  302;  gamon  &  Morgan,  R.  R.  Co.  v.  County  of 

Hunt  u.Bullock,   23    111.320;    Titus   v.  Morgan,  14  111.  163. 

Mabee,  25  111.  257  ;    Titus  v.  Ginheimer,  3  Titus  v.  Mabee,  25  111.  257,  per  Walk- 

27    111.    462.      See,   however,   an    earlier  er,  J. 

case,   in   which  it  was  held  that  a    road  4  Art.  11,  §  10. 

and  its  furniture  do   not  constitute   one  5  Scott  r.  Clinton  &  Springfield  R.  R. 

thing ;  that  the  furniture  of  a  road  is  no  Co.  6  Biss.  529. 

142 


REGARDED   AS   FIXTURES.  [§  158. 

possession  of  the  mortgagor,  and  confers  an  equity  prior  to  claims 
under  judgments  and  executions  subsequently  obtained.  The  prin- 
ciple is  the  same  whether  the  property  be  regarded  as  real  or 
personal.1 

158.  That  the  franchise,  lands,  and  property  of  corporations 
chartered  for  the  use  and  accommodation  of  the  public  cannot 
be  levied  upon   or  sold  under  execution  has  been  declared  by 
numerous  authorities,  on  the  ground  that  the  value  and  usefulness 
of  the  entire  corporate  property,  and  of  the  corporate  franchise, 
would  thus  be  destroyed.    This  was  the  view  taken  by  the  Supreme 
Court  of  the  United  States  in  the  case  of   Gue  v.  Tide  Water  Ca- 
nal Company?     The  property  levied  on  in  this  case  was,  however, 
land  and  fixtures,  such  as  canal-locks,  admitted  to  be  necessary 
to  the  working  of  the  canal.     The  sheriff  being  about  to  sell  the 
property,   the    company   filed  a  bill,  praying   for   an   injunction 
against  the  sale,  which  was   granted  and  made  perpetual   by  the 
Circuit  Court,  and,  on  appeal,  this  decree  was    affirmed.     Chief 
Justice  Taney,  delivering  the  opinion  of  the  court,  said:  "The 
property  seized  by  the  marshal  is  of  itself  of  scarcely  any  value, 
apart  from  the  franchise  of  taking  toll,  with  which  it  is  connected 
in  the  hands  of  the  company  ;  and  if  sold  under  this  fieri  facias, 
without  the  franchise,  would  bring  scarcely  anything  ;  but  would 
yet,  as  it  is  essential  to  the  working  of  the  canal,  render  the  prop- 
erty of  the   company  in   the  franchise,  now  so  valuable  and  pro- 
ductive, utterly  valueless.    Now,  it  is  very  clear  that  the  franchise 
or  right  to  the  toll  on  boats   going  through  the  canal  would  not 
pass  to  the  purchaser  under  this  execution.     The  franchise  being 
an   incorporeal  hereditament  cannot,   upon   the  settled  principles 
of  the  common  law,  be  seized  under  a  fieri  facias.     If  it  can  be 
done  in  any  of  the  states,  it  must  be  under  a  statutory  provision 
of  the  state  ;  and  there  is  no  statute  of  Maryland  changing  the 
common  law  in  this  respect.     Indeed,  the   marshal's  return   and 
the  agreement  of  the   parties  show  it  was  not  seized,  and,  conse- 
quently, if  the  sale  had  taken  place,  the  result  would  have  been 
to  destroy  utterly  the  value   of  the   property  owned  by  the  com- 
pany, while  the  creditor  himself  would,   most  probably,   realize 
scarcely  anything  from  those  useless  canal-locks  and  lots  adjoin- 
ing them.     The  record  and  proceedings  before  ,us  show  that  there 

i  I'cr  Drummond,  J.  -  -l  Iluxv-  -:,:- 

1  13 


§  159.]  LEGAL   NATURE   OF   ROLLING   STOCK. 

were  other  creditors  of  the  corporation  to  a  large  amount,  some  of 
whom  loaned  money  to  carry  on  the  enterprise.  And  it  would 
be  against  the  principles  of  equity  to  allow  a  single  creditor  to 
destroy  a  fund  to  which  other  creditors  had  a  right  to  look  for 
payment,  and  equally  against  the  principles  of  equity  to  permit 
him  to  destroy  the  value  of  the  property  of  the  stockholders,  by 
dissevering  from  the  franchise  property  which  was  essential  to  its 
useful  existence." 

159.  In  Pennsylvania  the  policy  of  the  law  with  reference 
to  the  levying  of  executions  upon  a  railroad  or  its  appurte- 
nances has  been  declared  in  several  cases  to  be,  that  any  property 
of  the  corporation  necessary  to  the  exercise  of  the  franchises 
granted  to  it  cannot  be  levied  on  and  sold  under  an  execution  on 
a  judgment  against  the  corporation.1 

In  one  case,  in  which  a  levy  upon  loose  rails  and  chairs  in- 
tended for  use  in  repairing  a  railroad  was  called  in  question,  it 
was  held  that  even  if  the  rails  and  chairs  be  not  regarded  as  affixed 
to  the  realty,  but  as  standing  to  the  road  in  the  same  relation  as 
the  rolling  stock,  —  personalty  by  nature,  but  appurtenant  by  use, 
and  necessary  to  operate  the  road,  —  considerations  of  public  pol- 
icy forbid  the  levy  and  sale  on  execution  of  such  articles.  In- 
dependently of  the  public  purpose  for  which  they  are  used,  doubt- 
less such  property  is  liable  to  seizure.  This  view  of  the  subject 
was  forcibly  presented  in  the  Court  of  Common  Pleas  of  Penn- 
sylvania by  Mr.  Justice  Agnew,  afterwards  of  the  supreme 
bench  of  that  state  :  2  "A  railroad  corporation  is  but  a  servant 
of  the  state,  and,  while  it  has  its  private  ends,  it  must  obtain 
them  through  a  faithful  discharge  of  its  obligation  to  the  public, 
for  whose  benefit  its  powers  are  conferred.  Its  charter  is  not 
only  the  grant  of  its  own  privileges,  but  it  is  the  evidence  of 
their  consideration  arising  in  the  public  benefit,  and  of  'its  con- 
tract to  subserve  this  purpose.  For  this,  and  this  alone,  the  state 
imparts  a  portion  of  its  sovereign  power,  and  invests  it  with  high 
privileges.  So  completely  subservient  is  it  to  the  public  good,  so 
clearly  a  trustee  for  a  general  purpose,  its  own  property  may  be 

i  Youngman  v.  Elmira  &  Williamsport  &  Western  R.  R.   Co.  v.  Parker,  9  Ga. 

R.  R.  Co.  65  Pa.  St.  278;  Shamokin  Val-  377. 

ley  R-  R-   Co.  v.  Livermore,  47  Pa.  St.  2  Covey  v.   Pittsburg,  Fort   Wayne  & 

465  ;  Susquehanna  Canal  Co.  v.  Bonham,  Chicago  R.  R.  Co.  3  Phila.  Rep.  173. 
9  Watts  &  S.  (Pa.)  27.      See,  also,  Macon 

141 


REGARDED   AS    FIXTURES.  [§  160. 

taken  and  used  to  fulfil  a  higher  public  use.  So  much  is  the  no- 
tion of  a  public  trust  involved  in  every  such  charter  that  every 
doubt  in  its  interpretation  is  resolved  in  favor  of  the  public,  and 
against  the  private  interest.  If,  besides  their  rails  and  their  sup- 
porting chairs  actually  imbedded  in  the  track,  the  company  may 
not  maintain  deposits  of  others,  at  convenient  intervals,  for  im- 
mediate repair,  and  if,  because  they  thus  lie  in  piles  they  may  be 
seized  all  along  the  route  by  successive  writs,  the  usefulness  of  the 
railway  as  a  public  work  must  cease.  If  it  may  be  dismantled 
by  attacking  it  in  detail  and  seizing  those  things  most  easily  re- 
moved, though  essential  to  its  preservation,  it  would  be  but  a  step 
to  the  end  ;  when  stripped  of  all  but  its  road-bed  and  fixtures,  it 
would  be  powerless  to  serve  the  public  or  benefit  itself. 

"  The  purpose  of  a  railroad,  the  nature  of  its  property,  the 
necessity  of  possession  to  accomplish  its  purpose,  and  the  powers 
conferred  in  the  charter,  leave  no  room  to  doubt  the  validity  of  a 
mortgage,  without  delivery  of  possession  of  those  chattels  which 
are  necessary  to  carry  out  the  object  of  incorporation.  Though 
the  body  is  private,  the  object  is  public  ;  and  it  is  clothed  with  a 
portion  of  the  sovereign  power  to  accomplish  this.  But  the  right 
of  highway  and  of  eminent  domain  to  take  private  property  for 
its  use  cannot  alone  build  a  railway.  The  means  to  pay  for  labor, 
machinery,  equipment,  &c,  is  essential,  and  power  to  borrow 
money  and  pledge  property  is  openly  conferred  in  the  same  char- 
ter to  which  those  who  assail  the  mortgage  must  look  for  the 
power  to  contract  with  them.  Rails  for  repairs,  rolling  stock,  &c, 
are  as  essential  to  the  operation  of  the  road  and  its  public  design 
as  the  road-bed  and  fixtures  themselves.  Having  conferred  the 
power  to  borrow  money  and  mortgage  the  property,  to  carry  out 
an  object  of  great  public  utility,  it  would  be  absurd  to  suppose 
the  legislature  meant,  in  the  teeth  of  its  purpose,  to  require  a 
delivery  of  the  property  necessary  for  this  purpose,  in  order  to 
make  the  mortgage  effectual,  while  the  mortgagees  are  under  no 
duty  to  operate  the  road."  : 

160.  Consistent,  perhaps,  with  the  foregoing  are  late  cases 
in  that  state,  in  which  it  was  held  that,  although  ears,  horses,  har- 
i         j,  and  other  personal   property  of  a  passenger  railway  oom- 

1  Per  Agnew,  P.  J.,  in  Core;  v.  Pittsburg,  Port  Wayne  &  Chicago  R.  B.  Co. 
tupra. 

io  L45 


§  161.]  LEGAL   NATURE    OF   ROLLING   STOCK. 

pany,  cannot  be  seized  on  execution  as  against  a  mortgagee  of  the 
property,  or  as  against  the  general  creditors  of  the  company  after 
its  insolvency,  yet  in  such  cases  the  equity  which  would  restrain  a 
sale  at  law  springs  from  the  fact  of  insolvency,  or  from  the  trusts 
created  by  the  mortgage.     Mr.  Justice  Woodward,  of  the  Supreme 
Court  of  Pennsylvania,  in  a  nisi  prius  case,1  said  :  "  Where,  how- 
ever, the  question   is  presented  independently  both  of  insolvency 
and  mortgage  trusts,  —  where  the  exemption  from  levy  and  sale  is 
claimed  on  no  other  ground  than  that  of  accession  to  the  corporate 
franchise,  —  I  cannot  agree  that  rolling  stock  and  equipments  are 
as  much  exempt  as  the  rails  of  the  road.     I  know  of  no  reason 
why  a  railway  company's  horses  and  carriages  may  not  be  seized 
on    execution    by   a   judgment    creditor  in  the  same  manner  as 
the  horses  and  carriages  of  any  other  debtor ;  no  reason,  I  mean, 
that  is  intrinsic  and  self-existent  in  the  economy  of  the  corpora- 
tion.    Reasons  may  arise  out  of  the  equities  created  in  favor  of 
other  parties  by  a  state  of  insolvency,  or  the  fact  of  a  mortgage ; 
but  apart  from  these  considerations  —  considering  a  railroad  com- 
pany with  reference  only  to  its  judgment  and  execution  creditors 
—  I  suppose  it  holds  its  personal  property,  as  all  other  debtors  do, 
subject  to  levy  and  sale  for  debts.     It  is  attempted  to  apply  the 
doctrine  of  fixtures,  and  to  treat  everything  as  part  of  the  com- 
pany's freehold  which  is  essential  to  the  carrying  on  of  its  appro- 
priate business.     That  doctrine  has  never  been  so  applied  any- 
where, I  believe, —  certainly  not  here  in  Pennsylvania."     In  the 
case  before  the  court,  there  being  a  question  whether  the  com- 
pany had  power  to  mortgage,  the  court,  without  deciding  this, 
enjoined  the  levying  of   the  execution  until  further  order,  but  di- 
rected that  the  lien  should  continue  in  the  mean  time. 

161.  In  Kentucky  also  personal  property  essential  to  the 
operating  of  a  railroad  is  held  not  to  be  subject  to  execution. 
Such  seizures  and  sales  are  thought  to  lead  to  results  too  mischiev- 
ous to  be  tolerated.  In  the  case  of  Phillips  v.  Winslow  2  the  court 
say  :  "  If  executions  can  be  levied  upon  one  car,  they  can  be  lev- 
ied upon  all  the  cars  upon  the  road.  If  they  can  be  levied  upon 
part  of  the  fuel,  they  can  be  levied  upon  all  of  it,  and  thus  the 

i  Loudenschlager  v.  Benton,  3  Grant,  2  18  B.  Mod.  (Ivy.)  431,  44S ;  and  see 
384;  4  Phila.  Rep.  420;  Brill  v.  West  Douglass  v.  Cline,  12  Bush  (Ky.),  608, 
End  P.  Iiv.  Co.  4  W.  Notes  of  Cases,  139.     630. 

146 


REGARDED    AS   FIXTURES.  [§§  162,  163. 

business  of  the  road  may  be  entirely  suspended.  Such  a  result 
would  not  only  produce  great  injury  to  the  plaintiff  (the  mort- 
gagee), but  great  inconvenience  to  the  public.  It  would  prevent 
all  travel  upon  the  road,  and  effectually  destroy  its  business  and 
its  usefulness.  If  the  property  was  subject  to  execution,  the  plain- 
tiff would  have  no  right  to  complain,  let  the  consequences  be  what 
they  might ;  but,  not  being  subject  to  execution,  he  has  a  clear 
right  to  apply  to  the  chancellor  for  an  injunction  to  prevent  an  act 
which  might  be  productive  of  so  great  an  injury  ;  the  right  to  re- 
deem the  property,  being  a  right  that  belongs  to  the  corporation, 
is  liable  for  its  debts  ;  but  the  defendants  were  not  attempting 
to  sell  this  equity  of  redemption,  but  the  property  itself,  which 
they  had  no  right  to  do." 

In  a  later  case  in  this  state  the  court  of  appeals  held  that  the 
cars  of  a  railway  company  are  not  subject  to  seizure  and  sale  by  a 
ministerial  officer,  even  for  taxes.  They  are  treated  as  fixtures 
of  its  road.  The  collection  of  these  taxes  can  be  enforced  only 
under  the  supervision  of  a  court  of  equitable  jurisdiction,  in  the 
same  manner  as  the  claims  of  creditors  of  the  company  are  en- 
forced." 1 

162.  In  Tennessee  it  has  been  held  that  under  a  mortgage  of 
the  main  line  of  a  railroad  situated  in  the  State  of  Arkansas  and 
covering  all  rolling  stock,  appurtenances,  and  income,  cars  from 
the  main  line,  found  in  Tennessee,  were  not  subject  to  attachment, 
but  were  protected  as  subject  to  the  lien  of  the  mortgage.2 

163.  In  New  Jersey  this  question  has  been  very  fully  dis- 
cussed, and  the  arguments  upon  the  question  —  whether  rolling 
stock  is  personal  property  or  fixtures  to  the  realty  —  most  ably  pre- 
sented upon  both  sides  in  the  different  decisions  rendered  in  the 
case  of  Williamson  v.  The  New  Jersey  Southern  Railroad  Company? 
The  Lackawanna  Iron  and  Coal  Company  recovered  a  judgment 
against  this  company  in  1874,  upon  which  execution  was  issued, 
and  levies  were  made  in  every  county  of  the  stale  through  which 
the   road  was  extended,  upon   the  cars,  engines,  and    rolling  stock 

1  Elizabethtown  &  Paducab  B.  It.  Co.  a  28  N.  J.  Eq.  277  ;  S.  C.  26  N.  J.  Eq. 
v.  Elizabethtown,  12  Bosh  (Ky.),  233.  398;  and  finally,  in  the  Couri  of  Errors 

2  Buck  v.  Memphis  &  Little  Bock  B.  and  Appeals,  March  term,  1878,29  N.  J. 

R.  Co.  4  C.  I>.  J.  4-iO.     See  §  104.  Eq.  311. 

147 


§  163. J  LEGAL   NATURE    OF    ROLLING    STOCK. 

of  the  company.  In  1869  the  company  had  executed  a  mortgage 
to  Williamson,  in  trust,  to  secure  bonds  to  the  amount  of  $2,000,- 
000.  This  deed  covered  all  the  railways,  branches,  rights  of  way, 
depots,  station-houses,  and  the  company's  franchises  then  held  or 
thereafter  to  be  acquired,  including  its  rolling  stock,  fixtures,  tools, 
and  machinery,  and  all  real  estate  of  every  kind,  unci  all  personal 
property  of  every  nature,  then  held  or  thereafter  to  be  acquired. 
A  covenant  for  further  assurance  provided  that  the  company 
would  hold  all  after-acquired  franchises  and  property,  real  and 
personal,  in  trust  for  the  mortgagee,  and  would  make  conveyance 
thereof  accordingly  from  time  to  time,  as  the  same  might  be  ac- 
quired. This  mortgage  was  duly  recorded  as  a  mortgage  of  real 
estate  soon  after  it  was  executed  and  delivered,  and  long  before 
this  judgment  was  recovered  ;  but  it  was  not  filed  in  compliance 
with  the  act  concerning  chattel  mortgages.  The  chancellor,  in 
an  able  opinion,  held  that  the.  rolling  stock  mortgaged  with  a 
railroad  is  a  part  of  the  realty  ;  or,  if  it  be  considered  personalty, 
the  provisions  of  the  act  concerning  chattel  mortgages  had  no  ap- 
plication.1 "  The  railway  and  the  cars,  with  the  engines  by  which 
they  are  drawn,  together  constitute  a  means  by  which  the  power 
of  steam  is  applied  to  the  purpose  of  transportation  of  passengers 
and  freight.  The  superstructure  of  the  road-bed  and  the  track, 
with  the  engines  and  cars  specially  adapted  thereto,  and  fitted  to 
roll  upon  it,  together  constitute  but  one  machine  for  those  pur- 
poses. The  track,  though  merely  laid  upon  the  ground,  is,  by 
common  consent,  regarded  as  real  estate.  The  engines  and  cars 
provided  by  the  owners  of  the  road  to  run  thereon,  and  without 
which  the  track  is  a  valueless  part  of  the  machine,  are  not  only  in- 
dispensable to  it,  but  must  be  regarded  as  part  and  parcel  of  it, 
and  therefore  partaking  of  its  character.  That  railroad  cars  in- 
tended for  and  placed  upon  a  railroad  may  be  used  on  any  other 
road  of  the  same  gauge  does  not  militate  against  this  proposi- 
tion. If  it  did,  the  fact  that  a  bell  in  a  factory  may  be  used 
elsewhere  ;  that  the  stones  in  a  mill  may  be  used  in  any  other  mill 
of  the  like  character ;  that  the  doors  and  shutters  of  a  house  may 
be  used  in  the  construction  of  any  other  house ;  and  that  fixtures 
in  a  factory  may  be  made  available  in  many  other  factories,  even 
of  a  different  character,  would  have  been  sufficient  to  have  led  the 
courts  to  a  different  conclusion  from  that  at  which  they  have  ar- 
i  Williamson  v.  N.  Jersey  Southern  R.  R.  Co.  28  N.  J.  Eq.  277. 

148 


REGARDED    AS   FIXTURES.  [§  163. 

rived  as  to  the  character  of  such  articles  in  connection  with  real 
property.  '  That  which  is  parcel,  or  of  the  essence  of  the  thing,' 
says  Sheppard,  '  although  at  the  time  of  the  grant  it  be  actually 
severed  from  it,  cloth  pass  by  the  grant  of  the  thing  itself  ;  and, 
therefore,  by  the  grant  of  a  mill  the  mill-stone  doth  pass,  albeit 
at  the  time  of  the  grant  it  be  actually  severed  from  the  mill  ; 
so,  by  the  grant  of  a  house  the  doors,  windows,  locks,  and  keys 
do  pass  as  parcels  thereof,  albeit  at  the  time  of  the  grant  they 
be  actually  severed  from  it.' 1 

"  There  is,  obviously,  no  force  in  the  argument  that  there  is 
no  necessary  connection  between  railroads  and  the  engines  and 
cars  used  thereon,  seeing  that  there  are  railroad  companies  which 
own  railroads,  but  no  engines  or  cars,  and  whose  railroads  are 
used  by  the  engines  and  cars  of  other  companies  only.  The  rela- 
tion of  the  cars  to  the  track,  their  special  adaptation  to  it,  and 
the  intention  of  their  owners  —  where  they  are  also  the  owners 
of  the  track — that  they  shall  be  used  upon  it,  are  considerations 
which  outweigh  the  suggestion  that  a  railroad  car  and  a  locomo- 
tive engine,  by  themselves  considered,  are,  of  course,  personal 
property.  So  are  the  stationary  engine  or  the  machine  in  the 
machine-shop  or  place  of  sale,  and  the  belting  in  the  store  where 
it  is  sold.  Property  which  would  otherwise  be  chattels  becomes 
real  estate  merely  by  attachment,  by  annexation,  actual  or  con- 
structive, for  use  in  connection  with  the  real  property  to  which 
it  is  attached.  In  no  other  way  is  its  character  changed.  If,  as 
in  the  case  before  me,  the  owners  of  a  railroad,  intending  to  use 
it  themselves  for  the  purposes  for  which  it  was  designed,  shall 
themselves  supply  it  with  engines  and  cars  necessary  for  —  and, 
therefore,  adapted  to  —  such  use,  with  the  intention  of  using  those 
engines  and  cars  thereon,  accordingly  the  engines  and  cars  may 
well,  under  such  circumstances  as  this  case  presents,  be  regarded 

as  part  and  parcel  of    the  railroad If  the    engines   and 

cars  were  designed  to  slide  upon  the  rails,  there  would  probably 
be  no  question  raised  as  to  their  character;  it  would  be  conceded 
that  they  are  a  part  of  the  realty.  The  fact  that,  instead  of  slic- 
ing, they  are  designed  to  move  on  wheels  attached  to  the  plat 
forms  on  which  they  rest,  and  which  constitute  pari  of  them,  can 
make  no  dilTerence  in  the  principle.  En  either  case  they  are  at 
tached  to  the  track,  and  adapted   thereto  to  be  moved  thereon. 

1  Touchst.  90. 

1  19 


§  164.]  LEGAL   NATURE    OF   ROLLING    STOCK. 

The  flanges  of  the  wheels  confine  the  cars  and  engines  to  the 
track  on  which  they  must  run,  unci  which  they  are  not  to  leave. 
If  they  leave  it,  they  usually  do  so  to  their  destruction.  Of  the 
intention  in  this  case  to  annex  (using  the  term  in  a  technical 
sense)  the  cars  and  engines  to  the  track,  there  is  the  most  abun- 
dant evidence.  The  mortgage  shows  it ;  it  is  obvious,  too,  from 
the  character  of  the  property  and  its  relation  to  the  railroad. 
These  latter  considerations  are  of  great  importance  in  that  con- 
nection." 

III.  Rolling  Stock  regarded  as  Personal  Property. 

164.  In  the  last-mentioned  case  the  Court  of  Errors  and 
Appeals  reversed  the  chancellor's  decision  in  regard  to  the 
nature  of  rolling  stock,  and  established  the  rule  in  New  Jersey 
that  this  kind  of  property  must  be  regarded  as  personalty,  and 
that  a  mortgage  of  it,  to  be  valid,  must  conform  to  the  provisions 
of  the  act  relating  to  mortgages  of  property  of  that  description.1 
Mr.  Justice  Depue  delivered  the  able  and  learned  decision  of  the 
court,  in  the  course  of  which  he  said  :  "  The  criterion  of  actual 
connection  of  the  freehold,  as  a  rule  for  determining  when  chat- 
tels become  part  of  the  realty,  is  as  well  settled  in  this  state 
as  any  other  rule  of  property.  Exceptions  founded  on  fanciful 
and  groundless  distinctions  only  tend  to  produce  uncertainty  and 
confusion  in  the  rules  of  property,  which  should  be  permanent 
and  uniform.  '  The  general  importance  of  the  rule,'  says  Cowen, 
J.,  '  which  goes  upon  corporeal  annexations,  is  so  great  that  more 
evil  will  result  from  frittering  it  away  by  exceptions  than  can  arise 
from  the  hardships  of  adhering  to  it  in  particular  cases.'  2  Tested 
by  the  foregoing  criterion,  it  is  manifest  that  the  rolling  stock  of 
a  railroad  must  be  regarded  as  chattels  which  have  not  lost  their 
distinctive  character  as  personalty  by  being  affixed  to  and  incor- 
porated with  the  realty.  It  is  true  that  engines  and  cars  are 
adapted  to  move  on  the  track  of  the  railroad,  and  are  necessary 
to  transact  the  business  for  which  the  railroad  was  designed.    But 

1  Williamson   v.  N.  J.  Southern  E.  E.  ages."     Chief  Justice  Green  declared  that 

Co.  29  N.  J.  Eq.  311.     In  the  earlier  case  engines  and  cars  are  no  more  appendages 

of  The  State  Treasurer  v.   Somerville  &  of  a  railroad  than  wagons  and  carriages 

Easton  E.  E.  Co.  (4  Dutch.)  28  N.  J.  L.  21,  are  appendages  of  a  highway, 
rolling  stock  had  been  regarded  as   per-         2  Walker  v.  Sherman,  20  Wend.  (N.  Y.) 

sonal  property,  and  not  included  under  a  656.     See,  also,  McMillan  v.  N.  Y.  Water 

statute  taxing  a  "  road  with  its  append-  Proof  Paper  Co.  29  N.  J.  Eq.  610. 

150 


REGARDED    AS    PERSONAL    PROPERTY.  [§  164. 

unattached  machinery  in  a  factory,  the  implements  of  husbandry 
on  a  farm,  and  furniture  in  a  hotel,  are  similarly  adapted  for  use 
in  the  factory,  on  the  farm,  in  the  hotel,  and  are  equally  essential 
to  the  profitable  prosecution  of  the  business  in  which  they  are 
employed.  When  regard  is  had  to  the  fundamental  and  necessary 
condition  under  which  the  law  permits  chattels  to  become  part  of 
the  realty,  engines  and  cars  of  the  rolling  stock  of  a  railroad  ut- 
terly fail  to  answer  the  requirements  of  the  law.  Cars  which  left 
Jersey  City  this  morning,  before  the  close  of  the  succeeding  week 
will  be  found  scattered  over  all  the  West,  or  on  the  Pacific  coast, 
—  their  places  of  transportation  through  this  state  being  supplied 
by  cars  gathered  from  the  railroads  of  other  companies,  many  of 
which  are  located  in  other  states.  The  suggestion  that  each  one 
of  these  cars  carries  with  it  the  attributes  of  realty  in  its  journey 
through  other  states,  or  even  over  other  railroads  in  this  state, 
will  show  the  incongruity  of  denominating  that  a  fixture  which, 
in  its  ordinary  use,  travels  over  other  railroads,  and  is  connected 
with  the  railroad  of  its  owner  in  no  other  way  than  in  its  useful 
employment  in  the  business  in  which  the  company  is  engaged. 

"  Having  reached  the  conclusion  that  the  rolling  stock  of  a  rail- 
road is  personal  property,  the  next  inquiry  will  be,  whether  a 
mortgage  of  such  property  is  within  the  provisions  of  the  statute 
requiring  such  mortgages  to  be  filed.  In  this  state  the  legislative 
policy  is  to  require  the  registry  or  filing  of  mortgages  of  all  prop- 
erty which  is  visible  and  tangible,  and  to  postpone  the  lien  of 
every  mortgage,  not  registered  or  filed  as  prescribed  by  law,  to 
the  claims  of  third  persons  —  the  creditors  of  the  mortgagor  and 
subsequent  bond  fide  purchasers  or  mortgagees.  This  is  apparent 
from  ;iu  inspection  of  the  statute."1  Referring  to  the  language 
of  the  statute,  the  learned  judge  goes  on  to  say  that,  giving  the 
words  their  primary  and  legal  signification,  —  which  is  the  car- 
dinal rule  for  the  construction  of  statutes,  —  it  must  be  construed 
to  apply  to  all  mortgages  of  property,  such  as  is  comprised  under 
the  description  of  "goods  ami  chattels,"  as  distinguished  from 
lands;  and  that  the  court  cannot  interpolate  any  qualification  of 
the   plain    language  of  the  statute  upon  any  supposed  inconven- 

1  Rev.  705-709.     This  .statute  applies  immediate  delivery   and    followed   by  an 

to  "every   mortgage  or  conveyance  in-  actual  ami  continued   change  of  posses- 

tended  t"  operate  as  a  mortgage  of  goods  sion." 
and  chattels,  —  not  accompanied    by   an 

151 


§  1G4.]  LEGAL   NATURE    OF   ROLLING    STOCK. 

ience  arising  from  its  application  to  any  particular  class  of  prop- 
erty which  is  within  the  operative  words  of  the  act. 

Pending  this  suit  the  State  of  New  Jersey  passed  a  statute  in 
reference  to  the  registration  of  mortgages  given  by  certain  cor- 
porations, providing  that  nothing  in  any  of  the  laws  of  the  state 
shall  be  held  to  require  the  filing  of  record  of  any  mortgage  given 
by  any  such  corporation  conveying  the  franchises,  and  including 
chattels  then  or  thereafter  to  be  possessed  and  acquired,  if  such 
mortgage  shall  be  duly  lodged  for  registry  as  a  conveyance  of  real 
estate.1  But  the  court  regarded  the  rights  of  the  judgment  cred- 
itor as  fixed  and  vested  in  1874,  when  the  levy  was  made  under 
the  executions,  which  no  subsequent  legislation  could  take  away. 
The  Act  of  1876  does  not  necessarily  require  a  retrospective  con- 
struction, and,  therefore,  the  court  would  not  allow  it  that  effect ; 
and,  if  the  language  used  required  such  a  construction,  it  could 
not  be  effective  to  deprive  a  party  of  prior  vested  rights  acquired 
under  the  levy. 

Another  point  made  on  the  argument  was  that,  even  if  the  roll- 
ing stock  be  goods  and  chattels,  and  a  mortgage  thereof  be  re- 
quired to  be  registered  or  filed  by  the  Chattel  Mortgage  Act,  the 
mortgagee  having  taken  actual  possession  of  such  property  before 
the  judgment  was  recovered,  the  complainant's  mortgage  is  enti- 
tled to  priority  over  the  judgment.  The  mortgage  was  made  on 
September  14,  1869,  and  possession  was  not  taken  of  the  rolling 
stock  by  the  mortgagee  until  January  1,  1874.  The  mortgage 
was  not  accompanied  by  an  immediate  delivery  of  the  property 
mortgaged,  but  possession  was  taken  before  the  judgment  was 
recovered.  But,  while  a  subsequent  purchaser  or  mortgagee,  in 
order  to  avoid  a  prior  mortgage  for  neglect  to  file  the  same,  or  to 
take  possession,  must  have  taken  his  title  under  the  mortgagor  in 
good  faith,  and  without  notice  of  the  existence  of  the  antecedent 
mortgage,  a  creditor  may  avoid  it,  although  he  has  such  notice. 
Consequently,  possession  taken  of  the  mortgaged  property  under 
a  prior  chattel  mortgage,  however  long  postponed,  will  give  it 
priority  over  a  subsequent  purchase  or  mortgage,  if  possession  be 
taken  in  fact  before  such  subsequent  sale  or  mortgage  was  made. 
But  a  creditor  is  entitled  to  the  benefit  of  the  statute,  whether  his 
rights  accrued  before  or  after  the  mortgage  ;  and,  since  his  knowl- 
edge of  the  existence  of  the  mortgage  does  not  preclude  him  from 

1  Acts  of  1876,  p.  308,  §  4. 

152 


REGARDED   AS   PERSONAL   PROPERTY.  [§  165. 

availing  himself  of  the  objection  that  the  mortgage  is  void,  be- 
cause it  was  not  accompanied  by  immediate  delivery  of  the  things 
mortgaged,  followed  by  an  actual  and  continued  change  of  posses- 
sion, a  subsequent  taking  possession  by  the  mortgagee  of  the  chat- 
tels mortgaged  will  not  give  validity  to  the  mortgage  as  against 
such  creditor.  He  is  entitled  to  the  benefit  of  the  statute  in  all 
cases  ;  and  the  mortgage  is  not  valid  against  him  unless  it  is 
filed  according  to  the  statute,  or  there  was  an  immediate  delivery 
and  continued  change  of  possession  of  the  things  mortgaged.1 

165.  In  New  York  it  has  finally  come  to  be  the  settled 
doctrine  of  the  courts  that  the  rolling  stock  of  a  railroad  is 
personal  property,  and  not  part  of  the  realty,  and  that  a  mort- 
gage is  not  effectual  to  give  a  lien  upon  such  rolling  stock  as 
against  creditors  of  the  company  unless  it  be  recorded  as  a  chat- 
tel mortgage.  This  question  was  first  passed  upon  in  this  state 
in  the  year  1857,  by  the  Supreme  Court,  which  held  that  rolling 
stock  is  to  be  deemed  constructively  annexed  to  the  road,  and 
that  a  mortgage  of  a  road  and  its  equipment  is  effectual  against 
judgment  creditors  without  being  filed  as  a  personal  property 
mortgage.2  In  the  following  year  other  justices  of  the  same  court 
held  that  rolling  stock  should  be  regarded  as  personalty,  and  that 
a  mortgage  of  it  was  ineffectual  unless  it  was  filed  under  the  act 
relating  to  mortgages  of  personal  property.3  This  decision  was 
followed  in  the  year  1859,  by  another  rendered  in  the  same  court, 
which  sustained  the  same  view.4  For  several  years  there  seems 
to  have  been  a  general  acquiescence  in  these  decisions.  But  in 
1867  the  matter  was  again  brought  in  question  in  the  Supreme 
Court,  at  special  term,  before  Mr.  Justice  Sutherland,  who,  while 
holding  that  rolling  stock  does  not  become  part  of  the  realty, 
also  held  that  a  mortgage  of  the  franchises  and  property  of  a 
railway,  so  far  as  the  personal  property  covered  by  it  is  con- 
cerned, should  not  be  deemed  to  be  subject  to  the  Chattel  Mort- 
gage Act.6     At  general    term    this  decision  was   affirmed;6    and 

"  Williamson  v.  N.  J.  Southern  K.  Ii.  4  Beardsley  v.  Ontario  Bank,  31  Barb. 
Co.,  |"  r  Depne,  J.  supra  ;  and  see  Stevens     (N.  Y.)  619. 

v.  Buffalo^  New  York  City  R.  R.  Co.  31        6  Be'ment  v.  Pittsburgh  &  Montreal  K. 
Barb.    IS.   Y.)  590;    Thompson   v.   Van     R    Co.  47  Barb.  (N.  Y.)  104,  109. 
7echten,27  N.  1  ''  Hoyle  v.  Plattsburgh  &  Montreal   R. 

-  Farmers'  Loan  &  Trust  Co.  v.  Hen-     R.  Co.  51  Barb.  (N.  Y.)  45. 
drickson,  25  Barb.  (N.  Y.)  484. 

■■  Stevens  v.  Buffalo  &  New  York  City 
R.  R,  Co.  31  Barb.  (X.  Y.j  590. 


153 


§  165.]  LEGAL   NATURE    OF   ROLLING   STOCK. 

Mr.  Justice  In  graham,  delivering  the  only  opinion,  declared  that 
he  was  not  prepared  to  accede  to  the  opinion  that  rolling  stock 
is  in  all  cases  to  be  considered  as  personal  property,  but  that, 
when  the  intent  of  the  parties  is  manifest  that  the  rolling  stock 
should  pass  as  part  of  the  realty,  such  a  construction  should  be 
given  to  the  transaction.  He  held  that  the  Chattel  Mortgage  Act 
did  not  apply  to  a  mortgage  executed  by  a  railroad  company  of 
its  corporate  property  and  franchises,  for  such  a  mortgage  is  in- 
tended both  by  the  legislature  which  authorized  it,  and  by  the 
parties  to  it,  to  be  treated  as  a  mortgage  of  the  road  and  its  ac- 
cessories. Upon  appeal  to  the  Court  of  Appeals  it  was  held  that 
the  rolling  stock  of  a  railway  does  not  pass  by  a  mortgage  as  part 
and  parcel  of  the  realty  ;  and,  also,  that  the  law  requires  a  mort- 
gage of  such  property  to  be  filed  as  a  chattel  mortgage  when  no 
change  of  possession  takes  place.1  Upon  the  first  point  the  court 
say :  "  Looking  now  at  the  rolling  stock  of  a  railroad,  it  is  orig- 
inally personal  in  its  character;  it  is  subservient  to  a  mere  per- 
sonal trade — the  transportation  of  freight  and  passengers.  The 
track  exists  for  the  use  of  the  cars  rather  than  the  cars  for  the 
use  of  the  track.  There  is  no  annexation,  no  immobility  from 
weight ;  there  is  no  localization  in  use.  The  only  element  on 
which  an  argument  can  be  based  to  support  the  character  of 
realty  is  adaptation  to  use,  with  and  upon  the  track.  At  the 
present  time,  independent  companies  exist  owning  no  tracks, 
whose  trains  run  through  state  after  state  on  the  railroad  track  of 
other  companies.  It  is  no  uncommon  sight  to  see  the  cars  of  half 
a  dozen  companies  formed  into  a  single  train,  and  running  from 
New  York  to  Illinois  and  Missouri.  It  is  impossible  to  deal  with 
such  property  as  part  of  the  realty  without  introducing  anoma- 
lies and  uncertainties  of  the  gravest  character.  Call  cars  and  en- 
gines part  of  the  realty  —  where  shall  they  be  taxed  ?  Real  es- 
tate is  to  be  taxed  at  its  site.  What  is  the  site  of  a  railroad  train 
running  from  New  York  to  Buffalo  in  a  day  ?  Shall  it  be  taxed 
in  each  town  where  the  assessors  catch  sight  of  it  rushing  by  at 
thirty  miles  an   hour?2     Or,  if   a  judgment  be  docketed  in  one 

i  Hoyle  v.  Pittsburgh  &  Montreal  R.         -  To  recur  to  the  old  example,  —  doves 

R.  Co.  54  N.  Y.  314;    S.  C.  7  Am.  Ry.  in  a  dove-cote  are  constructively  annexed 

Rep.  283.     In  Randall  v.  Elwell,  52  N.  Y.  to  the  realty.     But  do  they  not  fly  through 

521,  it  is  decided  that  rolling  stock  is  per-  the  air  at  the  rate  of  thirty  miles  an  hour, 

sonal  property,  and,  as  such,  is  liable  to  and  temporarily  leave  the  real   estate  to 

be  seized  and  sold  for  taxes.  which  they  are  annexed  1 

154 


REGARDED    AS   PERSONAL   PROPERTY.  [§  166. 

county  on  the  line,  will  its  lien  attach  on  each  car  as  it  is  whirled 
past?" 

In  regard  to  the  difficulties  and  embarrassments  thus  presented 
by  the  learned  judge  who  delivered  the  opinion  of  the  court,  it 
may  be  remarked  that,  because  rolling  stock  is  considered  to  be 
a  part  cf  the  realty  as  between  the  mortgagees  and  creditors 
claiming  liens  upon  it  as  personal  property,  it  is  not  necessary 
that  it  should  be  considered  realty  for  the  purpose  of  taxation  ; 
or  that  it  should  be  considered  realty  in  any  other  relation  than 
that  existing  between  the  railroad  company  and  those  claiming 
under  it  on  the  one  hand,  and  the  mortgagees  on  the  other.  It 
is  admitted  this  view  is  well  adapted  and  accommodated  to  this 
relation,  at  least  so  far  as  the  mortgagor  and  mortgagee  are 
concerned.  Because  a  railway  track  annexed  to  the  realty  by  a 
mortgagor  becomes  part  and  parcel  of  it  as  to  the  mortgagee,  it 
does  not  follow  that  if  the  track  were  built  by  a  tenant  for  use 
in  his  trade,  upon  leased  lands,  that  it  would  become  a  part  of 
the  realty  as  to  him.  The  right  of  the  mortgagee  to  hold  it  as 
realty  in  the  one  case,  and  the  right  of  the  tenant  to  remove  it 
in  the  other,  would  be  beyond  question. 

166.  Upon  the  point  whether  a  mortgage  of  rolling  stock, 
when  not  considered  a  part  of  the  realty,  is  within  the  stat- 
ute relating  to  the  filing  of  personal  property  mortgages,  the 
court  well  say  that,  if  this  case  is  to  be  excepted,  it  must  be 
either  on  account  of  the  character  of  the  mortgage  or  of  the  prop- 
erty mortgaged,  or  on  account  of  some  provision  of  the  statute 
law  taking  away  the  necessity  of  filing.  "A  railroad  corpora- 
tion does  not  differ  from  any  other  corporation,  nor  from  any 
natural  person,  in  respect  to  the  general  obligation  to  obey  the 
laws.  It  is  just  as  likely  to  get  fraudulent  credit  as  any  other 
corporation,  and  can  claim  no  special  immunity.  No  distinction 
can  be  drawn  to  exclude  ;i  railroad  corporation  from  tin'  provi- 
sions of  I  liis  statute  which  would  not  equally  exclude  every  trading 

corporation In  respect  to  the  character  of  the  property 

mortgaged,  no  exemption  from  obedience  to  the  law  can  be  sus- 
tained. A  railroad  and  rolling  stock  may  be  Owned  by  a  private 
individual  by  purchase,  or  may  be  constructed  l>\  a  private  indi- 
vidual on  his  own  land,  and  he  may  lake  fare  for  its  use  such  a 
he  pleases  to  charge;  unless  lie  wants  the  public  power  of  emi- 

L55 


§  167.]  LEGAL   NATURE    OF   ROLLING   STOCK. 

nent  domain,  or  the  use  of  public  property  or  easements,  he  has 
no  occasion  to  consult  anything  but  his  own  will,  and  his  own 
purse  about  constructing  or  running  a  railroad.  The  character  of 
the  property  itself  cannot,  therefore,  furnish  any  exemption  from 
obedience  to  the  law."  1 

Whether  such  a  mortgage  is  to  be  filed  only  in  the  town  in 
which  the  corporation  has  its  principal  place  of  business,  or  in 
every  town  through  which  the  line  of  the  road  passes,  is  a  question 
which  the  court,  in  this  case,  do  not  decide  —  the  law  requiring 
the  filing  of  the  mortgage  in  the  town  where  the  mortgagor  re- 
sides, or  where  the  property  mortgaged  is  at  the  time.  For  many 
purposes,  they  say,  a  corporation  is  to  be  deemed  resident  where 
its  place  of  business  or  chief  office  is  situated,  and  at  most  it  could 
only  be  deemed  resident  in  all  the  towns  in  which  any  part  of  its 
line  is  located.  But,  as  elsewhere  noticed,  the  recording  of  mort- 
gages of  rolling  stock  is  now  regulated  by  statute. 

167.  In  Ohio  rolling  stock  is  regarded  as  personal  property. 
In  one  case2  the  court  drew  a  broad  line  of  distinction  between 
the  real  and  personal  property  of  a  railway  company,  including  in 
the  former  the  road  as  constructed  and  prepared  for  use,  with  its 
fixtures  of  timber  and  iron  for  the  track,  of  stone  and  timber  for 
bridges  and  culverts,  its  depots  and  structures  for  supplying  wa- 
ter ;  and  in  the  latter  those  things  requisite  for  operating  the  road 
—  locomotives,  cars,  and  other  articles  and  materials,  some  of 
which  are  consumed  in  the  use,  and  require  to  be  renewed  from 
time  to  time.  The  line  is  broadly  drawn  between  the  interest  in 
real  estate  and  the  franchises  connected  therewith,  and  the  mova- 
ble things  employed  in  the  use  of  the  franchise.  "  The  distinc- 
tion," says  Mr.  Justice  Gholson,  "  appears  to  us  to  be  as  plain 
as  that  between  a  farm  and  the  implements  and  stock  which  the 
proper  use  of  the  farm  necessarily  requires.  There  are  instances 
which  may  be  put  still  more  analogous.  Take,  for  example,  a 
ferry  franchise.  It  is  connected  with  real  estate ;  it  is  itself  an  in- 
corporeal hereditament,  and,  therefore,  real  estate.  The  use  of  this 
franchise  requires  boats  and  other  movable  appliances.  But  these, 
when  employed  in  the  use  of  the  ferry  franchise,  do  not  thereby  be- 

1  Per    Johnson,   Com'r,    in    Hoyle    v.         2  Coe  v.  Columbus,  Piqua  &  Indiana  R. 
Plattsburgh  &  Montreal  R.  R.  Co.  54  N      R.  Co.  10  Ohio  St.  372. 
Y.  314. 

156 


REGARDED   AS   PERSONAL   PROPERTY.  [§  168. 

come  a  part  of  the  real  estate ;  they  are  the  personal  property  of 
the  owner  of  the  ferry  franchise  —  or,  it  may  be,  of  some  person 
to  whom  the  ferry  franchise  has  been  demised  for  a  term  of  years. 
Considerations  of  public  policy  and  convenience  have  been  pressed 
upon  our  attention  in  connection  with  the  question  under  exami- 
nation. It  may  be  true  that  a  railway  corporation  holds  its  prop- 
erty, in  a  certain  sense,  as  a  public  trust — to  answer  the  purpose 
of  a  public  highway,  the  transportation  of  persons  and  property. 
But  it  is  consistent  with  that  public  trust  to  contract  obligations. 
Indeed,  the  very  exercise  of  the  trust  necessarily  involves  obliga- 
tions to  individuals  ;  and,  to  meet  those  obligations,  the  property 
of  the  corporation  must  in  some  form  be  liable.  The  question  is, 
In  what  form  ?  Shall  it  be  in  the  ordinary  legal  form  applicable 
to  the  property  of  individuals,  or  shall  peculiar  rules  be  introduced, 
which  may  have  the  effect  to  delay  creditors  and  operate  as  a  shield 
to  protect  property  from  their  just  demands?'''  In  conclusion, 
the  court  say  that  the  interest  of  the  owners  of  the  road  must  be 
the  reliance  for  its  continued  operation  ;  that  it  is  not  the  policy 
of  the  state,  nor  would  it  be  just  to  individuals,  that  the  power  of 
the  court  should  be  invoked  to  enable  an  insolvent  corporation 
to  operate  a  railroad  by  protecting  its  property  from  the  claims  of 
creditors  —  those,  it  may  be,  who  have  performed  for  it  labor,  or 
have  suffered  losses  or  sustained  injuries  by  the  misconduct  of  its 
agents. 

168.  In  New  Hampshire l  the  rolling  stock  of  railroads,  like 
other  personal  property,  is  held  liable  to  attachment  and  levy 
when  not  in  actual  use.  It  was  argued  by  counsel  for  a  railroad 
company  whose  property  was  attached,  that,  such  property  being 
necessary  to  enable  the  corporation  to  discharge  its  public  duties, 
it  vested  in  the  corporation  in  trust  for  the  public  ;  that  the  fran- 
chise of  the  corporation  is  the  principal  thing,  to  which  the  track, 
depots,  engines,  cars,  and  tin;  like,  are  mere  incidents,  and  that  all 
these  constitute  one  entire  thing,  so  connected  that  the  cars  and 
engines  cannot  be  severed  from  their  connection  by  an  attachment 

i  Boston,  Concord  &  Montreal   R.   B.  in  its  relations  t<>  the  public,  which  pre- 

Co.  >•.    Gilmore,  .'S7   N.    II.  410.     In  tin-  vented  it  from  making  a  valid  mortgage 

earlier  case  of  Pierce  v.  Emery,  32   N.  II.  of  its  personal  property  nol  affixed  to  the 

484,  the  Supreme  Court  of  this  Btate  had  road,  though  used  in  operating  it.     See 

held  thai  there  was  nothing  in  tin-  nature  §  125. 
of  the  business  of  a  railroad  company,  or 

L57 


§  169.]  LEGAL   NATURE    OF   ROLLING    STOCK. 

or  seizure  on  execution,  and  held  as  security  or  sold  and  applied 
as  personal  property  ordinarily  may  be,  for  the  payment  of  the 
corporate  debts.  But  the  court  say  the  idea  that  property,  either 
real  or  personal,  may  become  a  mere  incident  to  a  franchise,  so 
that  the  franchise  and  property  shall  constitute  an  entire  thing,  is 
not  found  in  any  of  the  books  of  the  common  law.  A  ferry  is 
mentioned  as  an  instance  of  a  franchise,  for  the  use  of  which,  and 
for  the  discharge  of  its  public  duties  in  the  transportation  of  pas- 
sengers and  goods,  its  boats  are  wholly  indispensable  ;  yet  no  case 
is  found  where  it  has  been  claimed  that  such  boats  are  exempt 
from  seizure  in  discharge  of  the  owner's  debts.  "  Considering, 
then,  that  it  is  not  necessary  for  the  discharge  of  the  public  duties 
of  railroad  corporations  that  they  should  be  the  owners  of  cars  or 
engines  —  many  such  roads  being  operated  with  the  cars  of  other 
corporations ;  that  it  is  a  matter  of  great  uncertainty  what  articles 
of  the  personal  property  of  such  corporations  are  necessary  for  the 
discharge  of  their  public  duties  ;  that  no  means  exist  by  which  it 
can  be  determined  what  is  necessary  or  otherwise  ;  that  it  must 
be  very  difficult  for  courts  to  lay  down  any  definite  rule  by  which 
officers  can  be  guided,  who,  in  all  such  cases,  must  decide  at  their 
peril, — it  seems  to  be  neither  judicious  nor  expedient  to  establish 
an  exemption  of  this  kind,  unless  it  is  done  by  the  direct  action  of 
the  legislature,  who  can  provide  the  proper  rules  and  safeguards 
for  the  safety  of  officers  as  well  as  of  parties." 

169.  In  Massachusetts  it  has  been  held  that  under  a  mortgage 
of  a  railroad  its  locomotives  and  cars,  together  "  with  all  improve- 
ments made  upon  such  property,  and  all  additions  thereto,  by  add- 
ing new  locomotives,  cars,  and  other  things,"  cars  subsequently 
purchased  by  the  corporation  are  included,  although  the  mort- 
gagees had  not  taken  possession  for  foreclosure  ;  but  the  decision 
was  based  in  part  upon  the  fact  that  the  mortgage  was  confirmed 
and  ratified  by  legislative  act,  and  thus  effect  was  given  to  all 
parts  of  it,  including  the  provision  as  to  after-acquired  machinery 
and  cars.  This  mortgage  was  duly  recorded,  and  thus,  say  the 
court,  by  means  of  the  record  and  the  statute,  the  lien  thereby 
created  was  duly  notified  to  all  persons  having  dealings  with  the 
corporation  ;  and  therefore  a  creditor  of  the  corporation  could  not 
make  a  valid  attachment  of  cars  subsequently  purchased.1 
1  Howe  v.  Freeman,  14  Gray  (Mass.),  566 

158 


CONSTITUTIONAL  AND    STATUTORY    PROVISIONS.       [§§  170,  171. 

170.  In  conclusion,  upon  this  part  of  the  subject  it  may  be 
said  that,  while  there  are  many  and  strong  arguments  for  holding 
that  rolling  stock  is  part  of  the  realty,  —  and  this  view  seems  to 
have  the  support  of  the  United  States  courts,  —  the  weight  of 
authority  in  the  state  courts  seems  to  be  against  that  position. 
There  is,  however,  no  hope  that  any  uniform  and  settled  rule  upon 
this  subject  will  soon  be  arrived  at  by  the  courts  without  the  aid 
of  legislative  enactments.  It  is  of  the  highest  importance  that  the 
validity  of  mortgages  intended  to  embrace  the  rolling  stock  and 
other  personal  property  of  a  railroad  should  not  be  left  to  the  un- 
certain decision  of  the  courts  ;  for  in  the  present  state  of  the  law,  it 
must  at  least  be  regarded  as  uncertain  how  the  question  would  be 
determined  by  any  court  not  bound  by  a  precedent  or  by  statute, 

IV.     Constitutional  and  Statutory  Provisions  regarding  Rolling 

Stock. 

171.  In  several  states  there  is  now  a  constitutional  pro- 
vision "  that  rolling  stock  and  all  other  movable  property  be- 
longing to  any  l'ailroad  company  or  corporation  shall  be  considered 
personal  property,  and  shall  be  liable  to  execution  and  sale  in  the 
same  manner  as  personal  property  of  individuals,  and  the  general 
assembly  shall  pass  no  law  exempting  any  such  property  from  ex- 
ecution and  sale."  This  provision  was  first  made  a  part  of  the 
fundamental  law  of  Illinois 1  in  1870,  where  the  courts  had  pre- 
viously declared  rolling  stock  to  be  fixtures.  This  provision  has 
since  then  been  adopted  in  the  same  words  in  Missouri,2  Arkan- 
sas,3 Nebraska,4  Texas,5  and  West  Virginia.6 

Tin'  general  purpose  of  this  constitutional  provision  is,  undoubt- 
edly, to  enable  general  creditors  of  railroad  corporations,  whose 
claims  may  be  small,  to  find  property  out  of  which  their  claims  may 
be  satisfied.  When  the  franchise  and  property  of  a  railway  com- 
pany, and  perhaps  its  tolls  as  well,  are  all  covered  by  mortgage, 
the  general  creditors  are  practically  left  without  remedy  against 
it;  for,  even  if  there  be  any  value  in  Hie  property  above  the  mort- 
gage, it  is  extremely  difficult  for  a  general  ere. linn-  to  reach  and 
apply  the  surplus  to  the  payment  of  his  claim,  while  the  ex- 
penses of  the  proceedings  for  this  purpose  are  verj   Large. 

1  Const.  1870,  art.  xi.  §  10.  c  Const,  lsrc,  art.  x.  §   I.      See,  also, 

-  Const.  1875,  art.  xii.  §  10.  General  Railroad  Acl  1876,  ch.  97,  §  24. 

-  '  onst.  i-:i,  art  xvii.  §  11.  o  Const.  1872,  art.  xi. 
1  Const.  1875,  art.  xi.  §  2. 


§  171.]  LEGAL   NATURE    OF   ROLLING    STOCK. 

This  provision,  however,  would  not  prevent  the  mortgaging  of 
rolling  stock  as  personal  property  ;  and  a  railroad  mortgage  re- 
corded in  accordance  with  the  law  regulating  the  recording  of 
chattel  mortgages  would  effectually  cover  such  property.  More- 
over, as  already  noticed,  this  provision  does  not  change  the  rule 
that  a  mortgage  may  be  made  to  cover  after-acquired  rolling 
stock.1 

As  already  intimated,  it  seems  to  be  a  matter  of  the  highest 
importance  to  mortgage  bondholders  that  the  different  states 
should,  by  statute,  make  it  certain  where  a  mortgage  of  a  rail- 
road, including  its  equipment,  should  be  recorded  in  order  to  make 
the  lien  effectual  as  to  the  rolling  stock  and  other  like  property. 
In  those  states  in  which  the  laws  require  that  mortgages  of  per- 
sonalty shall  be  filed  for  record  in  the  office  of  the  clerk  of  the 
city  or  town  in  which  the  mortgagor  resides,  it  may  be  sufficient 
to  record  a  railroad  mortgage  only  in  the  city  or  town  where  the 
railroad  corporation  has  its  principal  office  or  place  of  business.2 
That,  for  most  purposes,  is  regarded  as  the  place  of  residence  of 
the  corporation.3  It  would  be  an  extreme  inconvenience  to  the 
mortgagee,  and  a  source  of  great  danger  of  loss,  if  he  is  in  such 
cases  required  to  record  his  mortgage  in  several  hundred  towns, 
it  may  be,  through  which  the  mortgaged  road  may  pass.  The 
supposition  that  a  railroad  corporation  is  a  resident  of  the  place 
where  its  principal  office  is  located,  rather  than  a  resident  of  all 
the  towns  through  which  its  line  of  road  passes,  has  been  acted 
upon  frequently  in  the  matter  of  recording  railroad  mortgages  ; 
but  without  positive  legislation  upon  the  subject,  or  legal  decision 
of  this  point,  there  is  just  enough  uncertainty  about  it  to  make 
the  position  of  a  mortgagee,  who  looks  to  the  rolling  stock  and 
other  personal  property  embraced  in  his  mortgage  as  a  material 
part  of  his  security,  quite  uncomfortable.  The  legislation  that  is 
demanded  upon  this  subject  is  that  which  has  been  adopted  in 
several  states,  namely,  the  making  of  the  record  required  for  the 
protection  of  the  real  estate  included  in  the  mortgage,  effectual 
also  as  a  record  of  the  personal. 

i  Scott  v.  Clinton  &  Springfield  R.  R.  the  situs   of  its   personalty.      Cooley  on 

Co.  6  Biss.  529.  Tax.  273,  and  eases  cited  ;    City  of  Da- 

2  So  provided  by  statute  in  Maine  (Rev.  buque  v.  Illinois   Central   R.  R.  Co    39 
Stat.  1871,  eh.  91,  §  1)-  Iowa,    5G  ;    State    v.    Severance,   55    Mo. 

3  As,  generally,  for  taxation,  the  place  378;  Pacific   It.  R.  Co.  v.   Cass   County, 
of  business  of  the  corporation  is  considered  53  Mo   17  ;  Dillon  Munie.  Corp.  §  629. 

160 


CONSTITUTIONAL    AND    STATUTORY    PROVISIONS.       [§§  172-174. 

Of  course,  when  a  subsequent  incumbrancer  has  actual  notice 
of  a  prior  mortgage,  and  of  the  fact  that  its  terms  embrace  roll- 
ing stock,  he  cannot  object  that  it  was  not  filed  as  a  chattel  mort- 
gage, because  the  notice  is  equivalent  to  such  filing.1 

172.  In  California2  locomotives,  engines,  and  other  rolling 
stock  of  a  railroad,  are  enumerated  among  the  articles  of  per- 
sonal property  of  which  a  mortgage  may  be  made.  But  mortgages 
of  personal  property  are  recorded  in  the  office  of  the  county  re- 
corder, in  which  mortgages  of  real  property  are  also  recorded ; 
only  they  must  be  recorded  in  books  kept  for  personal  mortgages 
exclusively,  and  must  be  recorded  in  the  county  in  which  the 
mortgagor  resides,  and  also  in  that  in  which  the  property  is  sit- 
uated, or  to  which  it  may  be  removed.  Personal  property  used 
in  conducting  the  business  of  a  common  carrier  is  to  be  taken  as 
situated  in  the  county  in  which  the  principal  office  or  place  of 
business  of  the  carrier  is  located. 

173.  In  Connecticut 3  it  is  provided  by  statute  that,  whenever 
any  railroad  company  has  mortgaged  its  railroad,  pursuant  to  law, 
to  secure  its  bonds,  and  has  included  in  said  mortgage  all  or  any 
part  of  its  rolling  stock,  locomotives,  and  cars,  whether  those  owned 
by  it  at  the  date  of  said  mortgage  or  those  thereafter  to  be  ac- 
quired by  it  for  use  upon  said  railroad,  or  both,  such  mortgage 
shall  be  deemed  valid  and  effectual  as  respects  all  the  property 
therein  included  as  aforesaid;  and  may  be  foreclosed  in  the  same 
manner  as  ordinary  mortgages  of  real  estate ;  and  the  record 
thereof  in  the  office  of  the  secretary  of  state  shall  be  a  sufficient 
record  and  notice  to  protect  the  title  under  the  mortgage,  not- 
withstanding  such  company  may  remain  in  possession  of  all  or 
any  [cut  of  the  mortgaged  property. 

174.  In  Dakota  Territory  4  it  is  provided  that  any  mortgage 
or  deed  of  trust  made  upon  the  lands,  road,  or  other  property  of 
a  railroad  corporation  shall  bind  and  be  a  valid  lien  upon  all  the 
property  mentioned  in  such  deed  or  mortgage,  including  rolling 
stork  ;   and    tin;   purchaser  under  foreclosure  of  such   mortgage   or 

1  Benjamin  v.  Elmira,  Jefferson  &  Can-        »  Public  Acta  1*77,  cli.  38. 
andaigua  R.  it.  Co  54  X.  V.  075.  <  Rev.  Code  1877,  p.  304. 

2  Civil  Code,  §§  2955,  2959,  2961. 

"  101 


§  175.]  LEGAL   NATURE    OF   ROLLING    STOCK. 

trust  deed  shall  have  and  enjoy  all  the  rights  of  a  purchaser  on 
execution  sale.  Such  mortgages  or  deeds  of  trust  may  by  their 
terms  include  and  cover,  not  only  the  property  of  the  corpora- 
tion making  them  at  the  time  of  their  date,  but  property,  both 
real  and  personal,  which  may  thereafter  be  acquired  by  them, 
together  with  all  the  material  and  property  necessary  for  the  use 
and  operation  of  such  roads,  and  are  as  valid  and  effectual  as  if 
the  property  were  in  possession  at  the  time  of  the  execution 
thereof.  Such  mortgages  or  deeds  of  trust  must  be  recorded  in 
the  office  of  the  register  of  deeds  of  each  organized  county  through 
which  such  road  mortgaged  or  deeded  may  run  in  this  territory, 
or  wherever  it  may  hold  lands  included  in  such  mortgages  or 
deeds  of  trust,  and  are  notice  to  all  the  world  of  the  rights  of  all 
parties  under  the  same ;  and  for  this  purpose,  and  to  secure  the 
rights  of  mortgagees  or  parties  interested  under  deeds  of  trust  so 
executed  and  recorded,  the  rolling  stock,  personal  property,  and 
material  necessary  for  operating  the  same  shall  be  deemed  a  part 
of  the  road,  and  such  mortgages  and  deeds  so  recorded  have  the 
same  effect,  both  as  to  notice  and  otherwise,  as  to  the  personalty, 
that  they  have  upon  the  real  estate  covered  by  them. 

175.  In  Florida  the  general  law  of  1874,  for  the  incorpora- 
tion of  railroads  and  canals,  provides  that  a  railroad  company  may 
make  such  provisions  in  any  trust  deed  or  mortgage  for  trans- 
ferring the  railroad,  the  rolling  stock,  and  other  furniture  and 
appurtenances,  in  connection  therewith,  or  which  shall  thereafter 
belong  to  it  as  security  for  any  bonds,  debts,  or  sums  of  money 
secured,  as  the  company  may  deem  proper.  Such  trust  deed  or 
mortgage  may,  by  the  direction  of  the  board  of  directors  of 
such  company,  be  recorded  in  the  office  of  the  secretary  of  state, 
in  a  book  kept  for  that  purpose,  and  when  so  recorded,  it  is 
evidence  and  notice  to  all  persons  of  its  existence  and  lawful  ex- 
ecution without  its  being  recorded  elsewhere  in  the  state ;  and 
when  so  recorded  it  has  the  same  effect  as  if  recorded  in  the  sev- 
eral counties  through  which  the  road  may  be  built,  and  is  notice 
to  the  same  extent  and  effect  as  if  so  recorded.1  All  rolling 
stock  used  in  connection  with  a  railroad  is  declared  to  be  fixtures, 
and  is  subject  to  the  lien  of  any  mortgage  of  the  roacL2 

1  Acts  of  1874,  ch.    1987,  §  9,  par.   10,         2  lb.  §  31. 
and  §  31. 

162 


CONSTITUTIONAL  AND   STATUTORY    PROVISIONS.       [§§  176-178. 

176.  In  Iowa 1  it  is  provided  that  any  mortgage  of  the  real 
and  personal  property  of  a  railroad  company,  whether  then  owned 
by  it  or  afterwards  acquired,  when  duly  executed  and  recorded  in 
the  office  of  the  recorder  of  each  county  through  which  the  rail- 
way of  the  corporation  may  run,  or  in  which  any  property  mort- 
gaged may  be  situated,  shall  be  notice  to  all  the  world  of  the 
rights  of  all  parties  under  the  same  ;  and  for  this  purpose,  to  se- 
cure the  rights  of  mortgagees  or  parties  interested  under  deeds 
of  trust  so  executed  and  recorded,  the  rolling  stock  and  personal 
property  of  the  company  properly  belonging  to  the  road,  and  ap- 
pertaining thereto,  shall  be  deemed  a  part  of  the  road,  and  such 
mortgages  and  deeds  so  recorded  shall  have  the  same  effect,  both 
as  to  notice  and  otherwise,  as  to  the  personalty,  that  they  have 
upon  the  real  estate  conveyed  by  them. 

177.  In  Massachusetts  2  it  is  provided  that  any  railroad  com- 
pany may  issue  bonds  for  any  lawful  purpose,  and  may  mortgage 
or  pledge  as  security  for  the  payment  of  such  bonds  any  part, 
or  all  of  its  road,  equipment,  or  franchise,  or  any  part,  or  all  of 
its  property,  real  or  personal. 

It  is  provided  that  cars  and  engines  in  use  upon  railroads  shall 
not  be  attached  upon  mesne  process  in  any  suit  within  forty-eight 
hours  previous  to  their  fixed  time  of  departure,  unless  the  officer 
shall  have  first  demanded  other  property  equal  in  value  to  the 
ad  damnum  in  the  writ  upon  which  to  make  such  attachment, 
and  such  demand  has  been  refused  or  neglected.3 

178.  In  Minnesota,4  by  a  statute  enacted  in  1868,  mortgages 
or  deeds  of  trust  of  railroad  companies  may,  by  their  terms,  include 
and  cover,  not  only  the  property  of  the  companies  making  them 
at  the  time  of  their  date,  but  property,  both  real  and  personal, 
which  may  thereafter  be  acquired  by  them,  and  they  are  as  valid 
and  effectual  for  that  purpose  as  if  the  property  were  in  possession 
at  the  time  of  the  execution  thereof.  Such  mortgages  or  deeds  of 
trust  recorded  in  the  office  of  the  register  of  deeds  of  each  county 

1  Code  1873,  §§  1284,  1285.  Yet  the    3  Act  1875,  ch.  144,  §  1. 

rolling  stock  seems  to  be  regarded  as  per-        4  l    St;it.  at  Large   1873,  p.  431;  Act 

Bona!  property.    City  of  Dubuque  '■.  Illi-  March  5,  1868.    As  to  record  in  the  office 

uois  Central  K.  II.  Co.  89  Iowa,  56,  86,  of  the  secretary  of  state  having  same  effect, 

per  Beck,  J.  see  Act  March  6,  1867  ;  I   Stat,  at  Large, 

2  Acts  1874, ch.  .T72,  §  49  ;  1875,  ch.  58.  430. 

1G3 


§§  179-181.]         LEGAL    NATURE    OF   ROLLING    STOCK. 

through  which  the  road  mortgaged  or  deeded  may  run,  or  wher- 
ever it  may  hold  lands,  will  be  notice  to  all  the  world  of  the  rights 
of  all  parties  under  the  same  ;  and  for  this  purpose,  and  to  secure 
the  rights  of  mortgagees  or  parties  interested  under  deeds  of  trust 
so  executed  and  recorded,  the  rolling  stock  and  personal  property 
of  the  company  properly  belonging  to  the  road  and  appertaining 
thereto  are  deemed  a  part  of  the  road,  and  such  mortgages  and 
deeds  so  recorded  have  the  same  effect,  both  as  to  notice  and  other- 
wise, as  to  the  personalty,  as  upon  the  real  estate  covered  by  them. 

179.  In  Montana  Territory  1  it  is  provided  that  any  railroad 
corporation  may  mortgage  its  property  and  income  ;  and,  if  the 
mortgage  shall  so  provide,  it  shall  be  and  remain  a  valid  lien  upon 
all  of  the  property  of  the  company  of  whatever  kind  then  exist- 
ing, or  that  may  thereafter  be  by  it  acquired,  irrespective  of  the 
law  now  in  force  relating  to  chattel  mortgages,  and  the  same  shall 
be  taken,  held,  and  enforced  in  the  same  manner  as  mortgages 
upon  real  estate  now  are  held  and  enforced. 

180.  In  Nebraska  2  the  general  railroad  law  provides  that  mort- 
gages and  deeds  of  trust  of  railroad  companies  shall  be  recorded  in 
the  office  of  the  county  clerk  of  each  organized  county  through 
which  the  mortgaged  road  may  run,  or  in  which  it  holds  lands, 
and  shall  be  notice  to  all  the  world  of  the  rights  of  all  parties 
under  the  same ;  and  for  this  purpose,  and  to  secure  the  rights  of 
mortgagees  or  parties  interested  under  deeds  of  trust,  the  rolling 
stock,  personal  property,  and  material  necessary  for  repairing  the 
road  of  the  company,  belonging  to  said  road,  or  appertaining 
thereto,  shall  be  deemed  a  part  of  the  road,  and  such  mortgages 
and  deeds  of  trust  so  recorded  shall  have  the  same  effect,  both  as 
to  notice  and  otherwise,  as  to  the  real  estate  covered  by  them. 

181.-  In  New  Jersey3  a  law  passed  in  1876  provided  that  noth- 
ing in  any  of  the  laws  of  the  state  shall  be  held  to  require  the  fil- 
ing of  record  in  the  clerk's  office  of  any  county  of  any  mortgage 
given  by  any  such  corporation,  conveying  the  franchises  thereof, 
and  whereby,  also,  any  chattels  then  or  thereafter  to  be  possessed 
and  acquired  by  such  corporation  shall  purport  to  be  mortgaged  ; 

i  Laws  1873,  p.  102.  3  Laws  1876,  p.  308,  §  4 ;    2  Rev.  1877, 

2  Gen.  Stat.  1873,  ch.  11,  §  120.  p.  924,  §  82. 

164 


CONSTITUTIONAL   AND    STATUTORY    PROVISIONS.       [§§  182-184. 

provided,  that  such  mortgage  shall  be  duly  lodged  for  registry  ac- 
cording to  the  laws  regulating  the  conveyance  of  real  estate. 

182.  In  New  York  1  it  was,  in  1868,  provided  that  it  shall  not 
be  necessary  to  file  as  a  chattel  mortgage  any  mortgage  which 
has  been,  or  may  be,  executed  by  any  railroad  company  upon  its 
real  and  personal  property,  and  which  has  been,  or  shall  be,  re- 
corded as  a  mortgage  of  real  estate  in  each  county  in  or  through 
which  the  railroad  runs. 

183.  In  Ohio2  it  is  provided  that  in  all  cases  where  a  mortgage 
has  been,  or  may  hereafter  be,  executed  upon  any  portion  of  the 
personal  and  real  property  of  any  railroad  company  within  the 
state,  by  proper  officers,  to  secure  the  payment  of  any  loans  of 
money,  or  advances  of  material  or  labor  made  to  said  company,  it 
shall  be  a  sufficient  record  of  the  same  to  have  the  same  recorded 
in  the  office  of  the  recorder  of  deeds  in  each  of  the  counties  in 
which  said  real  or  personal  property  may  be  situated  or  employed, 
and  said  mortgage  so  recorded  shall  be  held  to  be  a  good  and  sub- 
stantial lien  from  the  date  of  the  record  of  the  same  in  each  county 
where  the  same  is  recorded,  as  well  upon  the  personal  as  the  real 
property  of  said  company. 

184.  In  Vermont3  all  mortgages  of  railroad  franchises,  furni- 
ture, cars,  engines,  and  rolling  stock  of  any  kind,  when  properly 
executed  and  recorded,  are  effectual  to  vest  in  the  mortgagee  a 
valid  mortgage  interest  in,  and  lien  upon,  all  such  property,  with- 
out delivery  or  change  of  possession  ;  and,  for  the  purpose  of 
mortgage,  all  such  property  is  deemed  part  of  the  realty.  Such 
mortgage  is  recorded  in  the  office  of  the  county  clerk  of  each 
county  through  which  the  road  passes,  instead  of  the  offices  of  the 
town  clerks;  and  when  so  recorded,  it  has  the  same  effect  as  if 
recorded  in  the  several  offices  of  the  town  clerks  of  the  towns 
through  which  such  road  passes.  It  is  provided,  however,  that 
such  rolling  stock  may  be  attached  by  any  person  having  a  claim 
against  the  company  for  an  injury  sustained  on  the  road  by  reason 

»  Laws  1868,  ch.  779,  §  1  ;  3  Fay's  Dig.  *  Gen.  Stat.    1870,  ch.  28,  §§   100-102; 

of  Laws, 236;  2 R.  8.  1875,  p.  555,  §  115.  Act,   1851,   No.  :>7,   §   l,  ami     1856,   N<>. 

2  l  Rev  Stat.  18G0,  p.  822,  passed  Feb.  t^'J,  §§  1,2. 
9,  1853, 

165 


§§  185,  186.]        LEGAL   NATURE   OF   ROLLING   STOCK. 

of  any  neglect  of  the  corporation,  or  for  services  rendered  or  ma- 
terials furnished  for  the  purpose  of  keeping  the  road  in  repair  or 
in  running  the  same,  or  for  any  liabilities  as  common  carriers,  or 
for  the  loss  of  any  property  while  in  the  possession  of  the  corpo- 
ration. 

185.  In  West  Virginia 1  the  rolling  stock,  and  all  other  mova- 
ble property  belonging  to  any  railroad  company,  is  considered 
personal  property,  and  is  liable  to  execution  and  sale  in  the  same 
manner  as  the  personal  property  of  individuals.  Mortgages,  how- 
ever, of  real  property  and  mortgages  of  personal  property  are  re- 
corded in  the  same  county  registry  and  under  the  same  laws.3 

186.  The  general  railroad  laws  of  Wisconsin  3  provide  that 
railway  companies  may,  in  mortgages  or  trust  deeds,  make  such 
provisions  for  pledging  or  transferring  their  property,  including 
rolling  stock  and  appurtenances  in  connection  with  the  railroads 
or  which  shall  thereafter  belong  to  them,  as  security  for  any 
bonds,  debts,  or  sums  of  money  secured,  as  such  companies  may 
think  proper.  Any  deed  of  trust  or  mortgage  of  any  locomotives, 
tenders,  cars,  or  other  property  used  or  intended  to  be  used  as  roll- 
ing stock  or  equipment  on  any  railroad,  and  any  discharge  thereof 
acknowledged  in  such  manner  as  would  entitle  a  deed  of  real  es- 
tate to  be  recorded,  is  sufficiently  recorded  or  filed  by  filing  a  copy 
in  the  office  of  the  secretary  of  state  ;  and  a  certificate  of  such  fil- 
ing indorsed  thereon  by  the  secretary  of  state  is  evidence  thereof ; 
and  such  deed  of  trust  or  mortgage  is  valid  and  effectual  as  against 
the  creditors  of  the  company,  or  subsequent  purchasers  or  mortga- 
gees in  good  faith,  without  any  further  proceeding  whatsoever.  All 
rolling  stock  used  in  connection  with  a  railroad  is  declared  to  be 
fixtures,  and  is  subject  to  the  same  lien  as  is  created  by  such  trust 
deed  or  mortgage  upon  the  real  property  of  such  railroad  com- 
pany ;  and  every  such  deed  of  trust  or  mortgage  recorded  in  the 
office  of  the  secretary  of  state,  in  a  proper  book  kept  for  the  pur- 
pose, has  the  same  effect  as  if  recorded  in  the  several  counties 
through  which  the  road  may  be  built ;  and  such  record  is  notice  of 
the  lien  to  all  persons  interested.     But  this  statute  makes  rolling 

1  Act    April    3,   1873;  ch.  88    of   Acts         3  Laws     1872,    ch.    119,    §§   39    &   40 ; 
1872-1873.  Laws  1877,  ch.  144,  §  1  ;  and  see  Railroad 

2  Code  1870,  p.  74,  §§  5,  7.  Co.  v.  James,  6  Wall.  750. 

166 


CONSTITUTIONAL   AND   STATUTORY   PROVISIONS.  [§  187. 

stock  a  fixture  only  for  the  purpose  of  enabling  railroad  corpora- 
tions the  more  readily  to  give  valid  liens  and  mortgages  upon  their 
property.  It  does  not  contemplate  that,  in  respect  to  all  the  legal 
remedies  of  parties,  a  car  or  locomotive  should  be  treated  as  real 
estate  ;  and  it  is  accordingly  held  that  such  property  is  liable  to 
seizure  and  sale  for  delinquent  taxes  as  personal  property.1 

187.  In  Great  Britain  the  rolling  stock  and  personal  prop- 
erty essential  to  the  operating  of  railways  are  by  statute 
protected  from  levy  by  execution.2  The  act  provides  that  the 
engines,  tenders,  carriages,  trucks,  machinery,  tools,  fittings,  ma- 
terials, and  effects,  constituting  the  rolling  stock  and  plant  used 
or  provided  by  a  company  for  the  purposes  of  the  traffic  on  their 
railway,  or  of  their  stations  or  workshops,  shall  not,  after  their 
railway  or  any  part  thereof  is  open  for  public  traffic,  be  liable  to 
be  taken  in  execution  at  law  or  in  equity ;  but  the  person  who  has 
recovered  any  such  judgment  may  obtain  the  appointment  of  a 
receiver,  and,  if  necessary,  of  a  manager,  of  the  undertaking  of 
the  company,  on  application  by  petition  in  a  summary  way  to 
the  Court  of  Chancery ;  and  all  money  received  by  such  receiver 
or  manager  shall,  after  due  provision  for  the  working  expenses 
of  the  railway  and  other  proper  outgoings  in  respect  of  the  un- 
dertaking, be  applied  and  distributed,  under  the  direction  of  the 
court,  in  payment  of  the  debts  of  the  company,  and  otherwise, 
according  to  the  rights  and  priorities  of  the  persons  for  the  time 
being  interested  therein  ;  and  on  the  payment  of  the  amount  due 
to  every  such  judgment  creditor  as  aforesaid  the  court  may,  if 
it  think  fit,  discharge  such  receiver  or  such  receiver  and  manager. 

If  in  any  case  where  property  of  a  company  has  been  taken  in 
execution  a  question  arises  whether  or  not  it  is  liable  to  be  so 
taken,  notwithstanding  this  act  the  same  may  be  heard  and  de- 
termined on  an  application  by  either  party,  by  summons  in  a  sum- 
mary way  to  the  court  out  of  which  the  execution  issued,  and 
such  determination  is  final  and  binding. 

It  is  also  provided  that  companies  unable  to  meet  their  engage- 
ments  may  file  a  "  scheme  of  arrangement"  in  chancery,  which, 

i  Chicago  &  Northwestern  By.  Co.  v.  Vict.  ch.  126,  as  to  Scotland.  These  acta 
Borough  of  Ft.  Howard,  '.ii  Wis.  44.  made  perpetual   in  1875,  38  &  39  Vict.  ch. 

2  The  Bailway  Companies  Act    1807,     31;  and  see  35  &  36  Vict.  ch.  50. 
30  &  .'si  Vict.  ch.  127;  and  see  30  &  31 

1G7 


§  187.] 


LEGAL   NATURE    OF   ROLLING   STOCK. 


when  assented  to  by  a  certain  proportion  of  the  mortgagees  and 
shareholders,  and  confirmed  by  the  court,  is  binding  and  effectual, 
and  has  like  effect  as  if  it  had  been  enacted  by  parliament. 

Prior  to  the  passing  of  this  act,  it  was  held  that  the  mortgagee 
of  an  undertaking  could  not  have  an  injunction  against  judgment 
creditors  who  were  about  to  take  under  an  elegit  the  lands  of  the 
company  ; l  for  a  mortgage  of  the  undertaking  does  not  ordina- 
rily, and  unless  the  intention  is  apparent  by  the  deed,  pass  the 
land  itself,  or  constitute  any  charge  upon  it.2 


1  Perkins  v.  Deptford  Pier  Co.  18  Sim. 
277. 

2  Wickham  v.  New  Brunswick,  &c.  Ry. 
Co.  L.  R.  1  P.  C.  64  ;  and  see  Hart  v.  East- 
ern Union  Ry.  Co.  7  Exch.  246,  265; 
Eastern  Union  Ry.  Co.  v.  Hart,  8  Exeh. 
116;  Perkins  v.   Pritchard,   3    Railw.    & 

168 


Canal  Cas.  95.  In  Lower  Canada,  the  roll- 
ing stock  of  a  railway  is  held  to  he  a  part 
of  the  realty,  and  as  such  not  liable  to  seiz- 
ure under  a  writ  of  execution  de  bonis. 
Grand  Trunk  Ry.  Co.  v.  Eastern  Town- 
ships Bank,  10  Lower  Can.  Jur.  11  ;  S.  C. 
16  lb.  173. 


CHAPTER  VI. 


MORTGAGE  BONDS  OF  CORPORATIONS. 


I.  Formalities    in    making    and    issuing 
bonds,  188-196. 

II.  Negotiability  of  corporate  bonds,  197- 
210. 


III.  Incomplete  and  altered  bonds,  211- 
216. 

IV.  Remedies  upon  corporate  bonds,  217- 
221. 


I.  Formalities  in  making  and  issuing  Bonds. 

188.  General  statement.  —  An  ordinary  money  bond  is  an  in- 
strument under  seal,  which  contains  an  acknowledgment  of  the 
loan  and  an  agreement  to  repay  the  same  upon  the  terms  stated. 
Annexed  to  it,  and  forming  a  part  of  the  bond  originally,  there 
are  usually  interest  coupons  or  warrants  for  each  instalment  of 
interest  accruing  during  the  time  the  bond  has  to  run.  An  or- 
dinary bond  does  not  itself  create  any  charge  or  lien  upon  the 
property  of  the  company,  or  give  the  holder  any  priority  over  any 
other  creditor;  but  such  a  bond  is  usually  secured  by  a  mort- 
gage or  deed  of  trust,  which  creates  a  charge,  and  gives  all  the 
holders  of  the  bonds  secured  a  priority  over  all  who  may  sub- 
sequently become  creditors  of  the  company.  There  are  other 
bonds  not  secured  by  mortgage,  which  are  a  charge  upon  property 
by  force  of  statutes ;  of  these  something  has  already  been  said.1 
There  are  other  bonds  which  are  wholly  unsecured  ;  and  of  these 
and  like  securities  something  will  be  said  in  a  subsequent  chap- 
ter.2 

189.  A  bond  implies  a  seal.  —  A  corporate  seal  may  consist 
merely  of  an  impression  of  the  seal  of  a  corporation,  indented 
or  stamped  into  the  substance  of  the  paper  of  a  printed  bond, 
without  the  use  of  wax,  wafer,  or  other  adhesive  substance.8     A 

i  Sec  §5  72-83.  Mass.  444  ;  Hendee  >•.  Pinkerton,  1 1  Allen 

*  Sec  Chapter  viii.  (Ma  Allen  v.  Sullivan  K.  K.  Co. 

:'  Royal    Hank  <>f  Liverpool   v.   Grand  32  N.  II.  tic  ;  Chilton  v.  People, 66   111. 

Junction  II.  R.  &  Depot  Company,  100  r>oi ;  Jones  on  Mortgages,  §  i^s- 

L69 


§  190.]  MORTGAGE   BONDS    OF    CORPORATIONS. 

corporate  seal  so  impressed  by  the  printer,  by  direction  of  the 
officers  of  the  corporation,  who  adopt  his  act  by  signing  and  is- 
suing the  bond  so  prepared,  makes  the  instrument  valid  as  the 
bond  of  the  corporation.  In  states  where  the  distinction  between 
sealed  and  unsealed  instruments  is  inflexibly  preserved,  such  a 
sealing  is  unquestionably  valid ;  but  in  such  states  a  fac-simile  of 
the  corporate  seal  printed  with  ink  on  the  paper  is  not  a  valid 
seal.  There  is  no  definition  of  a  seal,  and  none  can  be  given, 
which  would  make  this  a  seal.  The  printed  form  of  a  seal  is 
nothing  more  than  a  scroll,  and  to  adopt  it  as  a  seal  would  be  to 
do  away  with  the  distinction  between  a  sealed  and  an  unsealed 
instrument.1 

A  sealed  instrument  conclusively  imports  a  consideration  ;  con- 
sequently it  is  no  defence  to  an  action  at  law  upon  the  bonds  of  a 
railroad  company  that  their  delivery  by  the  company  was  merely 
gratuitous,  and  without  the  payment  of  value  for  them  ;  or  that 
the  company  delivered  them  as  collateral  security  for  the  payment 
of  other  bonds.  The  corporation  can  avail  itself  of  the  fact  that 
the  bonds  are  held  as  collateral  only  by  paying  in  full  the  amount 
of  its  real  indebtedness.2 

A  corporate  seal  affixed  to  an  instrument  is  also  primd  facie 
evidence  that  it  was  placed  there  by  proper  authority  ;  or,  in  other 
words,  that  the  instrument  is  the  act  of  the  corporation.3 

The  fact  that  such  an  instrument  is  issued  under  the  seal  of 
the  corporation  is  now  regarded  as  of  no  consequence  in  respect 
to  its  negotiability.  This  formality  signifies  that  the  corporation 
has  duly  executed  the  instrument.  A  seal  does  not  make  such 
an  instrument  a  deed,  or  render  it  necessary  that  a  transfer  of  it 
should  be  by  a  sealed  instrument ;  but  the  holder  may  transfer  it 
by  the  customary  parol  transfer,  just  as  if  it  belonged  to  the  class 
of  simple  contracts.4 

190.  Corporations  generally  impose  upon  their  officers  cer- 
tain formalities  in  the  preparation  and  issue  of  their  bonds 
or  other  evidences  of  debt,  and  it  becomes  an  important  inquiry 

i  Bates  v.  Boston  &N.  Y.  Central  R.  R.  (Tenn.)    513  ;   Levering  v.  Mayor,    &c.   7 

Co.  10  Allen  (Mass.),  251.  Humph.  (Tenn.)  553. 

2  Royal  Bank  of  Liverpool  v.  Grand  *  Goodwin  v.  Robarts,  L.  R.  10  Ex.  337  ; 
Junction  R.  R.  &  Depot  Co.  100  Mass.  General  Estates  Co.  in  re,  L.  R.3  Ch.  758; 
444_  Imperial  Land  Co.  of  Marseilles  in  re,  L. 

3  City  of  Memphis  v.  Adams,  9  Heisk.  R.  11  Eq.  478. 

170 


FORMALITIES    IN    MAKING    AND   ISSUING.  [§  191. 

how  far  these  directions  are  binding  upon  persons  who  purchase 
bonds  issued  in  disregard  of  such  requirements.  In  general,  it 
may  be  said  that  whenever  the  obligations  issued  purport  to  be 
the  obligations  of  the  corporation,  and  are  so  in  fact,  the  omission 
of  any  preliminaries  required  by  the  articles  of  association,  or  by 
the  by-laws  of  the  corporation,  cannot  affect  a  bond  fide  purchaser 
without  notice.  Ordinarily  the  purchaser  has  no  means  of  know- 
ing what  formalities  are  required  as  between  the  corporation  and 
its  officers,  and  no  means  of  knowing  whether  such  requirements 
have  been  fulfilled.  A  director  or  other  officer  of  the  corpora- 
tion standing  in  such  relation  to  the  affairs  of  the  corporation 
that  he  would  be  presumed  to  know  both  what  the  requirements 
are,  and  whether  they  have  been  observed,  could  not,  of  course, 
take  the  obligations  of  the  corporation,  with  all  the  rights  of  a 
third  person  purchasing  without  notice.  But  a  purchaser  of  a  ne- 
gotiable obligation  from  such  officer  for  value,  unacquainted  with 
the  circumstances  under  which  it  was  originally  issued,  would  have 
all  the  rights  of  a  bond  fide  purchaser.1 

Again,  while  a  purchaser  of  a  corporate  security  is  bound  to 
know  whether  the  corporation  had  power  to  issue  it  at  all,  yet, 
when  such  authority  depends  upon  a  statute,  a  requirement  as  to 
the  manner  of  exercising  the  power,  as  for  instance  that  a  vote 
of  the  stockholders  or  a  resolution  of  the  directors  shall  first  be 
passed,  may  be  presumed  to  have  been  complied  with.  lk  Third 
parties  dealing  with  a  corporation  are  bound  to  know  the  law  ; 
that  is,  they  are  bound  to  take  notice  of  the  extent  of  its  powers, 
but  they  have  a  right  to  assume,  in  the  absence  of  anything  sug- 
gesting inquiry,  that  it  has  proceeded  regularly  in  the  execution 
of  its  powers."2  A  requirement  of  statute  that  the  act  of  a  cor- 
poration in  issuing  its  obligations  shall  be  authorized  or  rati  lied 
by  a  vote  of  its  stockholders  is  a  requirement  for  their  protec- 
tion, and  relates  to  the  mode  and  manner  of  executing  the  power 
rather  than  to  the  existence  of  the  power;  and  the  purchaser  has 
the  right  to  presume  that  the  corporation  has  done  its  duty  and 
proceeded  regularly  in  the  execution  of  its  power. 

191.   Formality  of  a  stockholder's  vote.  —  In  a  leading  Eng- 

1  Weff  <-. '  !ommissionen  <'f  Heme  Bay,     Cleveland,  Coluinbua  &  Cincinnati   B.  K. 
L.  R.  :.  Q.  I*..  642.  Co.  41  Barb.  (N.  V.)  :>. 

2  Connecticut    Mut.    Life    Ins.    Co.    v. 

171 


§  191.]  MORTGAGE   BONDS    OF   CORPORATIONS. 

lish  case  upon  this  subject,1  it  appeared  that  the  directors  of  a 
joint  stock  company  were  authorized  by  the  deed  of  settlement 
to  borrow  such  sums  of  money,  within  a  certain  limit,  as  the  com- 
pany should  authorize  by  a  resolution  passed  at  a  general  meet- 
ing of  the  company.  At  such  a  meeting  the  company,  instead  of 
authorizing  a  definite  loan,  authorized  the  directors  to  borrow  at 
their  discretion.  In  suit  upon  a  bond  issued  by  the  directors  the 
company  was  held  liable,  upon  the  ground  that  it  was  of  no  con- 
sequence whether  the  resolution  was  or  was  not  sufficient  au- 
thority to  the  directors  to  borrow,  and  of  no  consequence,  even, 
whether  there  was  any  resolution  at  all ;  inasmuch  as  a  person 
dealing  with  the  company  has  a  right  to  presume  that  the  com- 
pany, which  has  put  forward  the  directors  as  authorized  to  bor- 
row, has  taken  every  step  requisite  to  empower  it  to  borrow. 

So  in  a  case  in  Victoria,  where  a  mining  company  was  empow- 
ered to  borrow  money  and  mortgage  its  property  upon  a  vote  of 
the  stockholders  mid  the  directors,  it  was  held  that  the  company 
was  liable  upon  a  loan  obtained  by  the  directors  without  such  vote, 
for  the  lender  was  justified  in  assuming  that  there  had  been  a 
meeting  and  vote  of  the  shareholders  in  the  manner  directed.2 

Inasmuch  as  a  purchaser  is  not  concerned  with  a  requirement 
for  the  holding  of  corporate  meetings  to  authorize  the  issuing  of 
corporate  obligations,  for  a  still  stronger  reason  he  is  not  concerned 
with  requirements  respecting  the  preliminaries  of  such  meetings, 
such  as  the  publication  of  notices,  or  with  regulations  as  to  the 
manner  of  conducting  such  meetings.3 

Aside  from  the  consideration,  whether  a  requirement  by  statute 

or  by  charter  that  the  bonds  of  a  corporation  shall  be  issued  only 

upon  a  vote  of  the  stockholders  at  a  general  meeting  be  regarded 

as  a  directory  formality  or  an  imperative  one,  the  corporation  is 

estopped  by  a  waiver  of  such  formality.    Thus,  where  bonds  issued 

in  disregard  of    such  formality  were  treated  by  the  company  as 

good,  a  stockholder  who  had  attended  meetings  where  the  bonds 

1  Royal  British  Bank  v.  Turquand,  6  E.  Bl.  &  El.  183  ;  Pickard  v.  Sears,  6  Ad.  & 

&  B.  248,  827.    See,  also,  Colonial  Bank  El    469 ;  Freeman  v.  Cooke,  2  Ex.  654, 

of  Australasia  v.  Willan,  L.  R.  5  P.  C.  417  ;  663  ;  Eastern  Counties  Ry.  Co.  v.  Hawkes, 

Agarr.  Athenauim  Life  Ins.  Co.  3  C.  B.  N.  35  Eng.  L.  &  Eq.  8  ;  5  H.  L.  331. 

S.  725  ;  Lowe  v.  London  &  North  Western  2  Tyson's  Reef  Co.  in  re,  3  W.  W.  &  A. 

Ry.  Co.  18  Q.  B.  632  ;   London  &  North  B.  Cases  at  Law,  162. 

Western  Ry.  Co.  v.  M'Michael,  5  Ex.  855;  s  Fountaine    v.  Carmarthen  Ry.  Co.  L. 

Prince  of  Wales,  &c.  Co.  v.  Harding,  EL,  R.  5  Eq.  316;  Worcester  Corn  Exchange 

Co.  in  re,  3  De  G.,  M.  &  G.  180. 
172 


FORMALITIES   IN   MAKING   AND   ISSUING.  [§  192-194. 

were  treated  as  good,  upon  subsequently  filing  a  bill  to  restrain 
the  company  from  redeeming  the  bonds,  was  held  to  be  estopped 
from  contesting  their  legality.1 

192.  A  special  and  unusual  requirement  in  respect  to  the 
execution  of  a  corporate  obligation,  such  for  instance  as  that 
it  shall  be  signed  or  countersigned  by  a  particular  officer,  is  a  di- 
rectory formality  which  does  not  affect  the  right  of  one  who  has 
purchased  in  good  faith  without  knowledge  of  the  informality.2 

193.  In  like  manner  requirements  respecting  the  appoint- 
ment or  election  of  directors  or  other  officers  of  the  corporation 
cannot  affect  the  obligations  of  the  company  in  the  hands  of  bond 
fide  holders  for  value.3  The  directors  and  other  officers  of  the 
company  who  are  found  acting  as  such  are  presumed  to  be  legally 
appointed.4  It  is  well  settled  that  if  a  corporation  holds  out  to 
the  world  any  one  as  a  duly  qualified  officer,  or  acquiesces  in  his 
assumption  to  be  such  officer,  it  is  as  much  bound  as  if  he  had  been 
elected  and  qualified  with  every  prescribed  formality.  The  true 
legal  ground  of  the  obligation  is  that  of  estoppel. 

194.  Knowledge  of  the  irregularity.  —  Inasmuch  as  the  rea- 
son upon  which  this  class  of  cases  depends  is  that  a  person  deal- 
ing with  a  corporation  does  not  know,  and  has  no  adequate  means 
of  knowing,  whether  the  preliminaries  and  formalities  to  the 
proper  execution  of  an  instrument  have  been  complied  with,  it 
follows  that  when  the  irregularity  is  one  which  appears  upon  the 
face  of  tin;  instrument  itself,  the  purchaser  is  bound  to  take  notice 
of  it.  This  qualification  is  pointed  out  by  Page- Wood,  V.  C,  in 
a  leading  chancery  decision  :  5  "  There  is  no  doubt  an   important 

1  Zabriskic  v.  Cleveland,  Columbus  &  Cincinnati  R.  R,  Co  23    Eow.  381;  Cor- 

Cincinnati  R.  R.  Co.  '23  How.  381,  398.  rugi  v.  Atlantic  Fire  Ins.  Co.  40  ( la.  135  ; 

-  Briceon  Ultra  Vires, 2d  Eng.  ed.643;  2  Am.  R.  507  ;  Township  of  Brock  r.  To- 

Prince  of    Wales    Life    Assurance   Co.  v.  ronto   &  Nipissing  Uy.  Co.  17  Grant  (Up- 

Harding,  E.,  15.  &  E.  183;  Land  Credit  per  Canada  Ch.),  425. 

Co.  of  Ireland  in  re,  L.  R.  4  Ch.  460 ;  Hill  v.  *  Anderson   v.    Duke,  &c.  Gold  Mining 

Manchester  W.  Works  Co.5  \'>.&  A.. sen;  Co.  1  Australian  Jurist,  nil  ;  Countj  Life 

Allen  v.  Sea  Fire  &  Life  [ns.  Co.  9  C.  B.  Ass.  Co.  in  re,  L.  R.  5  Ch.288. 

574;  Bargate  v.  Shortridge,  5  11.  L.297;        B  Athense Life  Assurance  Soc.  tn re, 

Norwich  Yarn  Co.  in  re,  22  Beav.  143.  i  K.&J.549.    See,  also,  North  Hallenbea- 

:;  BankofU.  S.  u.Dandridge,  12  Wheat,  gle  Mining  Co.  in  re,  L.   R.  2  Ch.   321; 

64;  Zabriskie  v.  Cleveland,  Columbus  &  Fountaine  v.  Carmarthen   lij    Co.  L.  K. 

it;; 


§  195.]  MORTGAGE   BONDS    OF    CORPORATIONS. 

distinction  to  be  drawn,  and  it  is  drawn,  in  the  case  of  the  Royal 
British  Bank  v.  Turquand,  between  that  which  on  the  face  of 
it  is  manifestly  imperfect  when  tested  by  the  requirements  of 
the  deed  of  settlement  of  the  company,  and  that  which  contains 
nothing  to  indicate  that  those  requirements  have  not  been  complied 
with.  Thus  where  the  deed  requires  certain  instruments  to  be 
made  under  the  common  seal  of  the  company,  every  person  con- 
tracting with  the  company  can  see  at  once  whether  that  requisi- 
tion is  complied  with,  and  he  is  bound  to  do  so  ;  but  where,  as  in 
the  case  I  have  last  referred  to,  the  conditions  required  by  the  deed 
consist  of  certain  internal  arrangements  of  the  company,  —  for  in- 
stance resolutions  of  meetings  and  the  like,  — if  the  party  contract- 
ing with  the  directors  finds  the  acts  to  be  within  the  scope  of  their 
power  under  the  deed,  he  has  a  right  to  assume  that  all  such  con- 
ditions have  been  complied  with.  In  the  case  last  supposed,  he 
is  not  bound  to  inquire  whether  the  resolutions  have  been  duly 
passed  or  the  like  ;  otherwise  he  would  be  bound  to  go  back,  and 
to  inquire  whether  the  meetings  have  been  duly  summoned,  and 
so  ascertain  a  variety  of  other  matters  into  which,  if  it  were  nec- 
essary to  make  inquiry,  it  would  be  impossible  for  the  company 
to  carry  on  the  business  for  which  it  is  formed." 

All  that  has  been  said  upon  this  subject  is  premised  of  instru- 
ments which  on  their  face  purport  to  be  the  obligations  of  the 
corporation  to  be  charged  and  to  be  duly  executed  ;  for  a  corpora- 
tion is  not  liable  upon  instruments  which  do  not  purport  to  be 
made  by  it,  even  in  the  hands  of  a  bond  fide  holder  for  value.1 

Moreover  a  distinction  is  to  be  observed  between  transactions 
which  are  within  the  general  scope  of  a  corporation  without  the 
aid  of  statutory  authority,  and  those  which  depend  altogether  upon 
such  authority  for  their  validity.  Requirements  in  the  case  of  the 
former  might  be  regarded  as  directory  merely,  which  in  the  case 
of  the  latter  might  be  regarded  as  conditions  precedent  to  the  ex- 
ercise of  the  authority,  or  imperative  formalities. 

195.  The  bonds  of  a  railroad  company  are  not  rendered  void 
in  consequence  of  being  secured  by  an  invalid  mortgage,  one 
for  instance  which  the  company  had  no  power  to  execute.  A  cor- 
poration, like  a  natural  person,  has  the  right  to  carry  on  its  legiti- 

5  Eq.  316  ;  Native  Iron  Ore  Co.  in  re,  L.  1  Scrrell  v.  Derbyshire,  &c.  Ry.  Co.  9 
R.  2  Ch.  D.  345.  C.  B.  811  ;  on  Appeal,  10  C.  B.  910. 

174 


FORMALITIES   IN   MAKING    AND   ISSUING.  [§  196. 

mate  business  by  all  legal  and  necessary  means  not  prohibited  by 
law  or  by  its  charter.  If  it  has  the  power  to  borrow  money,  it  may 
issue  its  bonds  for  the  money  borrowed.  In  an  action  upon  such 
contract  obligation  the  mortgage  securing  it  is  of  no  consequence 
in  any  way.  A  defect  in  a  mortgage  does  not  invalidate  the  mort- 
gage debt,  but  only  the  security  for  it ;  and  a  want  of  power  to 
make  the  mortgage  does  not  affect  the  obligation  of  the  bonds  se- 
cured. Having  a  right  to  issue  the  bonds,  the  company  is  liable 
upon  them  without  regard  to  the  mortgage.  A  recital  on  the 
bonds  themselves  that  they  were  "issued  by  the  company  in  ac- 
cordance with  its  charter  to  the  amount  of  $500,000,  and  that  the 
mortgage  thereon  receipted  had  been  duly  executed,"  does  not 
prevent  a  recovery  upon  the  bonds,  though  the  company  had  no 
power  to  grant  the  mortgage.1 

A  provision  in  a  mortgage  not  contained  in  the  bonds  secured 
by  it,  making  the  principal  sum  due  after  a  default  in  the  pay- 
ment of  interest  for  a  certain  time,  does  not  enable  a  holder  of  the 
bonds  in  a  suit  upon  them  to  recover  the  principal  upon  such  de- 
fault. Such  provision  has  reference  only  to  making  the  principal 
due  in  case  of  the  foreclosure  of  the  mortgage.2 

196.  A  certificate  indorsed  on  a  mortgage  bond  of  a  corpo- 
ration, stating  that  such  bond  is  included  in  the  mortgage,  is  to  be 
construed  with  the  mortgage  and  the  bond  as  a  part  of  the  same 
security.3 

A  certificate  on  the  face  of  mortgage  bonds  signed  by  the  mort- 
gage trustees,  that  the  bonds  are  secured  by  a  first  mortgage  to 
them  in  trust  for  the  bondholders,  is  a  representation  binding  upon 
the  company  when  it  has  delivered  the  bonds  in  that  state ;  but  it 
does  not  of  itself  raise  an  absolute  presumption  that  a  purchaser 
relied  upon  the  certificate.  Consequently,  in  an  action  upon  a 
note  given  to  the  company  in  part  payment  for  such  a  bond,  the 
question  should  be  submitted  to  the  jury  whether  the  purchaser 
accepted  the  bonds  relying  to  any  extent  upon  the  certificate. 
The  certificate  is  no  part  of  the  bond,  and  the  representation  con- 
tained in  it  does  not  control  the  obligation  of  the  bond.     It  is  an 

1  Philadelphia  &  Strabury  B.  B.  Co.  v.        3  Benjiimin  v.  Elmira,  Jefferson  &  Can- 
Lewis,  .33  Va.  St.  33.  andaigua  B.  B.  Co.  49  Barb.  (N.  V.)  in. 

2  Mallorj  v.  West  Shore  Hudson  River 
R.  B.  Co.  3  Jones  &S.  (N.  Y.)  174. 

175 


§  197.]  MORTGAGE   BONDS    OF    CORPORATIONS. 

affirmation  that  the  estate  mortgaged  is  subject  to  no  prior  similar 
incumbrance.  This  affirmation  does  not  constitute  a  warranty 
unless  intended  to  have  that  effect.  It  is  a  representation  in  rela- 
tion to  a  material  fact  which  may  have  influenced  the  purchaser, 
but  whether  it  did  so  is  to  be  determined  by  the  jury  upon  all  the 
circumstances  attending  the  transaction.1 

II.    Negotiability  of  Corporate  Bonds. 

197.  Railroad  bonds  are  usually  made  payable  to  the  trus- 
tee named  in  the  mortgage,  or  bearer,  or  to  bearer  generally, 
and  they  pass  by  delivery  from  hand  to  hand.  They  are  in  fact 
mere  bills  or  notes,  and  as  strictly  negotiable  as  bank  bills. 
Though  called  bonds,  the  word  does  not,  ex  vi  termini,  imply  a 
contract  under  seal.  As  a  matter  of  fact  such  bonds  are  not  gen- 
erally under  seal.  If  executed  under  seal,  it  might  become  nec- 
essary for  the  courts  to  disregard  that  incident,  in  order  to  give 
them  that  legal  operation  which  the  unwritten  law  of  commerce 
has  already  given  them.  Therefore  in  an  action  upon  such  an 
instrument,  although  it  be  described  as  a  bond,  it  may  be  declared 
upon  the  same  as  a  bill  of  exchange  or  promissory  note,  as  an  in- 
strument importing  a  consideration.2 

Debenture  bonds  in  the  form  used  in  England  when  made  pay- 
able to  bearer,  are  held  to  pass,  like  bills  and  notes,  free  from  all 
equities  existing  against  the  original  holders.3  If  such  bonds  are 
made  payable  to  a  person  named  or  order,  after  indorsement  by 
the  payee,  they  become  negotiable  like  bonds  payable  to  bearer.4 
The  decisions  are,  however,  conflicting ;  and  indeed  until  of  late 
years  such  bonds  were  regarded  as  primd  facie  non-negotiable, 
and,  therefore,  subject  to  the  equities  existing  between  the  corpo- 
ration and  the  original  holders.5  The  latest  decisions  favor  the 
proposition  that  such  instruments  are,  in  equity  at  least,  negoti- 
able, free  from  the  equities  primarily  attached  to  them.6     In  the 

1  Edwards  v.  Marcy,  2  Allen  (Mass.),  4  General  Estates  Co.  in  re,  L.  R.  3  Ch. 
486.  758.   See,  also,  Agra  &  Masterman's  Bank 

2  Ide  v.  Passumpsic  &  Conn.  River  R.     in  re,  L.  R.  2  Ch.  391. 

R.  Co.  32  Vt.  297.  5  See  Athenaeum  Life  Ass.  Society  v. 

3  Imperial  Land  Co.  of  Marseilles  in  re,  Pooley,  3  De  G.  &  J.  294 ;  Natal  Invest- 
11  Eq.  478;  4  Cox's  Joint  Stock  Cas.  ment  Co.  in  re,  L.  R.  3  Ch.  355;  Rhos 
241  ;  Blakely  Ordnance  Co.  in  re,  L.  R.  3  Hall  Co.  in  re,  17  W.  R.  343. 

Ch.  159.  °  Brice  on  Ultra  Vires,  2d  ed.  304. 

176 


THEIR   NEGOTIABILITY.  [§  198. 

case  of  the  Imperial  Land  Company  of  Marseilles,1  which  had  is- 
sued debenture  bonds  payable  to  bearer,  and  had  sold  them  in 
open  market,  upon  the  winding  up  of  the  company  the  question 
arose  whether  equities  which  were  admitted  to  exist  in  favor  of  the 
company  against  the  parties  to  whom  they  were  originally  issued 
should  be  admitted  as  against  the  present  holders.  Vice  Chancel- 
lor Malins,  after  reviewing  the  authorities,  said  :  "  I  am  clearly  of 
opinion  that,  whether  theA'  were  promissory  notes,  or  bonds,  or 
debentures,  it  was  within  the  powers  conferred  upon  the  directors 
to  issue  them.  Are  they  then  promissory  notes  or  debentures'?  or 
does  it  make  any  difference  which  they  are  in  the  result?  My 
opinion  is  that,  whichever  they  are,  the  result  is  the  same,  be- 
cause they  in  any  case  make  a  contract  by  which  the  company 
have  bound  themselves  to  pay,  not  to  any  particular  person,  but 
to  any  person  who  may  be  the  bearer,  the  sum  appearing  to  be 
due  upon  their  face." 

Scrip  certificates  issued  by  a  foreign  government  or  by  a  corpo- 
ration on  negotiating  a  loan  promising  to  bearer,  after  all  instal- 
ments have  been  duly  paid,  a  bond  for  the  amount  paid,  with  in- 
terest, are  by  custom  of  all  the  stock  markets  of  Europe  negotia- 
ble instruments,  and  pass  by  mere  delivery  to  a  bond  fide  holder 
for  value.  This  is  the  English  law.  Any  person  taking  such 
scrip  in  good  faith  obtains  a  title  to  it  independent  of  the  title 
of  the  person  from  whom  he  took  it.2 

198.  A  bond,  although  a  sealed  instrument,  when  made 
payable  to  bearer  or  holder,  or  order,  is  negotiable,  with  all 
the  ordinary  properties  of  a  negotiable  instrument.3     Mr.  Justice 

1  L.  R.  11  Eq.  478,  supra.  &  Mass.  R.  R.  Co.  8  Gray  (Mass.  i.  575  ; 

2  Goodwin  v.  Robarts,  1  App.  Cas.  476  ;  Langston  v.  S.  Carolina  R.  R.  Co.  2  S.  C. 
S.  C.  L.  R.  10  Ex.  337;  Rum  ball  v.  Met-  218;  Mercer  County  v.  Hacket,  1  Wall, 
ropolitan  Hank,  L.  II.  2  Q.  B.  I).  194.  83,  95;  Knox    County    v.   Aspinwall,   21 

'■'•  White  v.  Vermont  &  Mass.  R.  R.  Co.  How.  589  ;  Zabriskie  v.  Cleveland,  Colum- 

21  How.  575;  Gelpcke  v.  City  of  Dubuque,  bus  &  Cincinnati  R.  R.  Co.  23   How.  381, 

1  Wall.  17;.;  Clark  v.  Iowa  City, 20  Wall.  400;  Hubbard  v.  N.  Y.  &  Harlem   R.  R. 

583;   Haven  v.  Grand  Junction  R.  R.  &  Co.  36   Barb.  (N.  V.)  286;  Craig   v.  City 

Depot  Co.  109  Mass.88;  Aurora  City  v.  of  Vicksburg,  31    Miss.  216;  County  of 

:  Wall.  82;   Connecticut    .Mutual  Beaver  v.   Armstrong,  44    Pa.  St.  ( 

Life   Ins.  Co.  v.  Cleveland,  Columbus  &  Blake  v.  Livingston  County,  61  Barb.  (N. 

Cincinnati  R,  R.  Co.  n  Barb.  (N.  5f.)9;  V.)  L49;  Brainerd  v.  N.  Y.  &   Harlem  R. 

Morris  Canal  &  Banking  Co.  v.  Fisher,  9  R.  Co.  25  N.  5T.496;  Dinsmore  v.  Dun. 

N.  J.  Ch.  (1  Stockl     667  699 ;  Carr  v.  Le  can,  57  N.  .Y.  573 ;  Welch  v.  Sage,  49  N. 

Fcvre,  27  Pa.  St.  413,  418 ;  Chapin  v.  N't.  Y.  143;  Hodges  v.  Shuler,  22  N.  Y.  ni; 

12  177 


§  198.]  MORTGAGE    BONDS    OF   CORPORATIONS. 

Nelson,  of  the  Supreme  Court  of  the  United  States,  pronouncing 
the  decision  of  that  court  to  this  effect,1  said  :  "We  think  the  usage 
and  practice  of  the  companies   themselves,  and  of  the  capitalists 
and  business  men  of  the  country  dealing  in  them,  as  well  as  the 
repeated   decisions  or  recognition  of  the   principle  by  courts  and 
judges  of  the   highest  respectability,  have   settled   the  question. 
Indeed,  without  conceding  to  them  the  quality  of  negotiability, 
much  of  the  value  of  these   securities  in  the   market,  and  as  a 
means  of  furnishing  the  funds   for   the  accomplishment  of  many 
of  the  greatest  and  most  useful  enterprises  of  the  day,  would  be 
impaired.     Within  the  last  few  years,  large  masses  of  them  have 
gone  into  general  circulation,  and   in  which  capitalists  have  in- 
vested their  money  ;  and  it  is  not  too  much  to  say,  that  a  great 
share  of  the  confidence   they  have  acquired,  as  a  desirable  secu- 
rity for  investment,  is  attributable  to  this  negotiable  quality,  as 
well  on  account  of  the  facility  of  passing  from  hand  to  hand,  as 
the  protection   afforded  to  the   bond  fide  holder."     Such  bonds 
are   not,  like  promissory  notes   and    bills  of  exchange,  negotiable 
under  the  law  merchant ;  but  being  designed  to  be  passed  from 
hand  to  hand  by  delivery,  they  have  by  common  usage  become  as- 
signable by  delivery,  so  as  to  enable   the  holder  to  maintain  an 
action  on  them  in  his  own  name.2     Though  not  exactly  governed 
by  the  law  merchant,  they  are  entitled  to  the  privileges  of  com- 
mercial paper.3     "  Usages   of  trade  and   commerce  are  acknowl- 
edged by  the  courts  as   part  of  the  common  law,  although  they 
have  been  unknown  to  Bracton  or  Blackstone.     And  this  mallea- 
bility to  suit  the  necessities  and  usages  of  the  mercantile  and  com- 
mercial world  is  one  of  the  most  valuable  characteristics  of  the 
common  law.      When  a  corporation  covenants  to  pay  to  bearer, 
and  gives  a  bond  negotiable,  with   negotiable   qualities,  and  by 
this   means  obtains  funds  for  the  accomplishment  of  the  useful 
enterprises  of  the  day,  it  cannot  be  allowed  to  evade  the  payment 

Virginia  v.  Chesapeake  &  Ohio  Canal  Co.  R.  R.  Co.  48  Me.  147  ;    Myers  v.  York  & 

32  Md.  501  ;  Wickes  v.   Adirondack  Co.  Cumberland  R.  R.  Co.  43  Me.  232. 

2  Hun  (N.  Y.),  112;  City  of  Elizabeth  v.  1  White  v.   Vt.  &  Mass.  R.  R.  Co.  21 

Force,  29  N.  J.  Eq.  587.    Contra,  but  not  to  How.  575. 

be  regarded  as  authorities  on  this  point,  2  Bunting  v.  Camden  &  Atlantic  R.  R. 

Diamond   v.   Lawrence    County,   37    Pa.  Co.  81  Pa.  St.  254  ;  15  Am.  Ry.  R.  570; 

St.  353;   Clarke  v.  City  of  Janesville,  1  Carr  v.  Le  Fevre,  27  Pa.  St.  413. 

Biss.  98  ;  Jackson  v.  York  &  Cumberland  3  Junction  R.  R.  Co.  v.  Chneay,  13  Ind. 


161. 


178 


THEIR   NEGOTIABILITY.  [§  199. 

by  parading  some  obsolete  judicial  decision,  that  a  bond,  for  some 
technical  reason,  cannot  be  made  payable  to  bearer.  That  these 
securities  are  treated  as  negotiable  by  the  commercial  usages  of 
the  whole  civilized  world,  and  have  received  the  sanctions  of  ju- 
dicial recognition,  not  only  in  this  court,  but  of  nearly  every  state 
in  the  Union,  is  well  known  and  admitted."  * 

199.  The  fact  that  an  unpaid  coupon  is  attached  to  a  bond 
not  yet  due  is  not  alone  sufficient  to  affect  the  position  of  a  pur- 
chaser of  the  bond  and  the  subsequently  maturing  coupons,  as  a 
bond  fide  purchaser.  This  alone  does  not  subject  the  bond  to  de- 
fences which  may  be  good  against  the  original  holder.  "  To  hold 
otherwise,"  said  Field,  J.,  speaking  for  the  Supreme  Court  of  the 
United  States,2  "  would  throw  discredit  upon  a  large  class  of  se- 
curities issued  by  municipal  and  private  corporations,  having  years 
to  run,  with  interest  payable  annually  or  semi-annually.  Tem- 
porary financial  pressure,  the  falling  off  of  expected  revenues  or 
income,  and  many  other  causes  having  no  connection  with  the 
original  validity  of  such  instruments,  have  heretofore,  in  many 
instances,  prevented  a  punctual  payment  of  every  instalment  of 
interest  on  them  as  it  matured  ;  and  similar  causes  may  be  ex- 
pected to  prevent  a  punctual  payment  of  interest  in  many  in- 
stances hereafter.  To  hold  that  a  failure  to  meet  the  interest  as 
it  matures  renders  them,  though  they  may  have  years  to  run,  and 
all  subsequent  coupons,  dishonored  paper,  subject  to  all  defences 
good  against  the  original  holders,  would  greatly  impair  the  cur- 
rencv  and  credit  of  such  securities,  and  correspondingly  diminish 
their  value." 

But  it  has  been  held  that  the  fact  that  coupons  overdue  and 
unpaid  for  several  years  were  attached  to  the  bond  at  the  time 
of  purchase  was  a  circumstance  of  suspicion  sufficient  to  put  a 
purchaser  on  guard.3  The  reasoning  of  the  court  in  this  case 
would  equally  make  a  bond  with  a  single  coupon  overdue  and 
unpaid  dishonored  paper;  for  they  say  the  interest,  equally  with 
ill.-  principal,  is  a  part  of  the  debt  secured,  and  it  is  immaterial 
whether  the  whole  or  only  a  part  of  the  debt  is  overdue.     When 

i  Per  Grier,  J.,  in  Mercer  County  v.  :1  First  Nat.  Bank  of  St.  Paul  u.  County 
Backet,  I  Wall.  63,  95.  Commissioners  <>f  s.-ott  County,  1 1  Minn. 

2  Cromwell  v.  County  of  Sac,  90  U.  S.     77. 
51,  58  ;  National  Bank  of  N.  A.  v.  Kirby, 
108  Mass.  407.  '  '  '' 


§  200.]  MORTGAGE    BONDS    OF   CORPORATIONS. 

due  the  plaintiff  has  a  right  of  action  for  the  recovery  of  the  in- 
terest, in  the  same  way  that  he  would  have  for  the  recovery  of 
any  other  instalment  on  the  bond.  In  view  of  the  authority  and 
reasoning  of  the  Supreme  Court  of  the  United  States,  and  of  the 
Supreme  Court  of  Massachusetts  on  this  subject,  the  above  case 
cannot  be  regarded  as  law.  A  purchaser  in  good  faith  of  ordinary 
coupon  bonds  is  unaffected  by  want  of  title  in  the  vendor.  The 
possession  of  such  bonds  carries  the  title  with  it  to  the  holder. 
Even  suspicion  on  the  purchaser's  part  of  defect  of  title  in  the 
seller,  or  knowledge  on  the  purchaser's  part  of  circumstances 
which  would  excite  such  suspicion  in  the  mind  of  a  prudent  man, 
or  gross  negligence  on  the  part  of  the  purchaser  in  purchasing  the 
bonds,  does  not  defeat  his  title.  That  is  affected  only  by  bad 
faith  on  his  part.  On  a  question  of  such  faith,  the  burden  of 
proof  lies  on  the  party  who  assails  the  possession.1  But  where  the 
defendant  has  shown  strong  circumstances  of  fraud  in  the  origin 
of  the  instrument,  such  evidence  casts  upon  the  holder  of  it  the 
necessity  of  showing  that  he  gave  value  for  it  before  maturity.2 

200.  Although  they  contain  an  agreement  for  their  con- 
version into  stock,  the  coupon  bonds  of  a  railroad  company, 
payable  to  a  person  named  or  bearer,  are  negotiable  instruments, 
with  the  privileges  of  such  paper ;  and  so  although  the  bonds  con- 
tain an  agreement  on  the  part  of  the  company  to  make  what  is 
termed  "  scrip  preferred  stock  "  in  exchange  therefor  at  any  time 
within  ten  days  after  any  dividend  should  become  payable  on 
such  stock.3  Such  an  agreement  is  independent  of  the  pecuniary 
obligation  contained  in  the  instrument,  and  does  not  change  the 
duty  of  the  company  with  respect  either  to  the  principal  or  in- 
terest stipulated.  Whether  the  agreement  to  convert  into  pre- 
ferred stock  is  of  any  value  or  not,  it  can  in  no  way  affect  the 
negotiable  character  of  the  instrument  ;  and  therefore  the  title  of 
a  bond  fide  holder  is  good,  although  the  bonds  may  have  been 
stolen  from  the  former  owner. 

Where  it  further  appeared  that  to  such  bonds  there  was  attached 

1  Murray  v.  Lardner,  2  Wall.  110;  ap-         2  Smith  v.   Sac  County,  11  Wall.  139. 
proving  Goodman  v.  Harvey,  4  Ad.  &  El.         3  Hotchkissv.  National  Banks,  21  Wall. 
870,  and  affirming  Goodman  v.   Simonds,     354. 
20  How.  343.    See,  also,  Cromwell  v.  Coun- 
ty of  Sac,  96  U.  S.  51. 
180 


THEIR    NEGOTIABILITY.  [§§  201,  202. 

by  a  pin  the  certificate  of  such  preferred  stock,  which  stated  that 
the  bondholder  was  entitled  to  a  certain  number  of  shares  of  such 
stock,  and  that  upon  the  surrender  of  the  bonds  he  should  be  en- 
titled to  receive  the  stock,  the  bonds  having  been  stolen  and  ne- 
gotiated to  one  who  took  them  without  actual  notice  of  any  defect 
in  the  title  to  them,  the  fact  that  the  certificate  originally  at- 
tached to  the  bonds  had  previously  been  detached  was  held  not 
to  be  a  circumstance  sufficient  to  put  the  person  who  took  the 
bonds  upon  inquiry  as  to  the  title  of  the  previous  holder.1  The 
title  of  a  person  who  takes  negotiable  paper  before  due  for  a 
valuable  consideration  can  only  be  defeated  by  bad  faith  on  his 
part,  which  implies  guilty  knowledge  or  wilful  ignorance  of  facts 
impairing  his  title  ;  and  the  burden  of  proof  lies  on  the  assailant 
of  the  title. 

201.  Bonds  and  debentures  -which  are  not  negotiable  in- 
struments are  merely  choses  in  action,  not  assignable  at  law, 
and  purchasers,  though  buying  them  in  good  faith,  for  value, 
without  notice,  take  them  subject  to  the  equities  attached.  There- 
fore, if  such  debentures  are  issued  by  the  chairman  of  the  direc- 
tors, in  fraud  of  the  company,  the  company  may,  upon  the  dis- 
covery of  the  fraud,  disclaim  its  liability.  Although  the  transfer 
be  recorded  upon  the  books  of  the  company,  and  interest  upon 
the  debenture  be  paid  for  a  year  or  more,  until  an  investigation 
of  the  company's  affairs  by  the  stockholders  revealed  the  fraud, 
these  acts  will  not  have  the  effect  of  a  confirmation  of  the  title  of 
one  who  has  purchased  the  debentures  in  the  market  in  the  ordi- 
nary course  of  business.  The  stockholders  not  being  bound  by 
the  loan  originally,  are  not  bound  by  payments  of  interest  or 
other  acts  without  their  knowledge.2 

Of  course,  a  purchaser  of  overdue  bonds  takes  them  subject 
to  the  rights  of  antecedent  holders  to  the  same  extent  as  other 
paper  bought  after  its  maturity.3 

202.  Written  contracts  are  not  necessarily  negotiable  be- 
cause   by  their  terms  they  enure  to  the  benefit  of  tin-  bearer. 

i  Hotchkiss  u.  National  Banks,  21  Wall.        n-  AthensBum  Life  Assurance  Soc.  v.  Poo- 
.354;  Murray   v.  Lardner,   'J  Wall.    110;     ley,  8  De  G.  &  J.  294. 
Welch  v.  Sage,  17  N.  Y.  i  !.;.  8  Vermilye  v.  Adams  Express  Co.  21 

Willi.  188. 

1  SI 


§  203.]  MORTGAGE   BONDS    OF   CORPORATIONS. 

Whether  they  are  negotiable  in  the  sense  that  innocent  holders  of 
them  are  protected  in  their  title  to  them  depends  in  part  upon 
the  subject  matter  of  the  contract.  Hence,  a  certificate  by  which 
a  person  acknowledges  that  he  has  received  a  certain  number  of 
shares  of  stock  in  a  corporation,  entitling  the  bearer  to  so  many 
dollars  in  certain  bonds  to  be  issued,  is  not  free,  in  the  hands  of 
the  transferee,  from  the  equities  which  would  have  affected  it  in 
the  hands  of  the  original  holder.1  Certificates  of  stock,  though 
they  pass  from  hand  to  hand  by  delivery,  do  not  partake  of  the 
character  of  negotiable  paper,  and  therefore  the  assignee  has  no 
better  title  than  the  assignor.2 

A  bond  is  rendered  non-negotiable  by  inserting  in  it  a  provision 
to  do  something  else  than  pay  money,  as  for  instance  to  feed  and 
clothe  a  slave.3 

203.  A  purchaser  of  bonds  which  refer  to  the  mortgage 
securing  them  is  bound  by  any  statements  contained  in  the 
mortgage  affecting  the  security.  The  mortgage  referred  to  nec- 
essarily becomes  a  part  of  the  bonds  in  determining  exactly  what 
they  are  represented  to  be.  Thus  the  New  York,  Kingston,  and 
Syracuse  Railroad  Company,  having  a  mortgage  of  82,000,000 
upon  its  road,  executed  another  mortgage  of  the  same  and  some 
additional  property  to  secure  bonds  to  the  amount  of  $4,000,000, 
which  were  described  on  their  face  as  first  mortgage  consolidated 
bonds,  and  indorsed  "  consolidated  first  mortgage  bonds."  These 
bonds  referred  to  a  mortgage  from  which  it  appeared  that  it  was 
intended  to  substitute  a  portion  of  the  bonds  for  the  first  mort- 
gage bonds  already  issued,  and  to  devote  the  remainder  to  the 
extension  and  completion  of  the  road.  In  an  action  against  the 
company  and  its  president  and  directors,  grounded  on  fraud  in 
issuing  the  bonds,  the  plaintiffs  alleged  that  they  furnished  certain 
materials  to  the  contractor  engaged  in  building  the  extension  of 
the  road,  under  an  agreement  with  him  to  receive  in  payment 
notes  secured  by  first  mortgage  bonds  of  the  defendant  corpora- 
tion ;  and  that  they  took  the  consolidated  first  mortgage  bonds  in 

1  Railroad  Co.  v.  Howard,  7  Wall.  392.  Townsend,  109  Mass.  115;  Shaw  v.  Spen- 

-  Weaver  v.  Barden,  49  N.  Y.  2S6  ;  3  cer,  100  Mass.  382;  1  Am.  R.  115. 

Lans.  338 ;  Dunn  v.  Commercial  Bank  of  3  Knight  v.  Wilmington  &  Manchester 

Buffalo,    11    Barb.   (N.   Y.)    580;    Leitch  R.  R.  Co.  1  Jones  L.  (N.  C.)  357. 
v.  Wells,  48  N.  Y.  585 ;  Salisbury  Mills  v. 

182 


THEIR   NEGOTIABILITY.  [§  204. 

the  belief  that  they  were  the  first  mortgage  bonds  of  the  company, 
when  in  fact  they  were  not.     The  Supreme  Court  of  New  York, 
however,  regarded  the  use  of  the  word  "consolidated"  as  sufficient 
to  put  a  purchaser  upon  his  inquiry,  even  if   it  did  not  in  itself 
control  and  qualify  the  statement  that  the  bonds  were  first  mort- 
gage bonds.1     Moreover,  the  bonds  referring  to  the  mortgage,  the 
purchaser  is  affected  with  its  contents;  and  that,  on  inspection, 
would  have  disclosed  the  fact  that  the  design  was  to  substitute 
these  bonds  for  bonds  previously  issued  and  secured  by  mortgage, 
and  would  have  dictated  the  propriety,  as  a  matter  of  security,  of 
ascertaining  whether  the  holders  of  the  old  bonds  were  willing  to 
make  the  exchange  or  accept  the  new  bonds.     These  bonds  would 
not  all  become  first  mortgage   bonds  without  such  change;  but 
there  is  no  allegation  or  proof  that  the  directors  of  the  corporation 
knew  that  the   substitution  would  not  be  accomplished,  or  that 
they  increased  the  issue  of   bonds  unlawfully,  or  for  a  fraudulent 
purpose  ;   on  the  contrary,  it  must  be  inferred  that  the  directors 
believed  in  the  success  of   the  scheme,  and  that  the  contractor, 
knowing  the  precise  character  of  the  bonds,  must  have  had  faith 
in  their  ultimate  value.     "  The  case  presented  seems,  therefore,  to 
be  bald  in  several  respects,  namely:  the  absence  of  fraudulent  de- 
sign or  purpose  in  issuing  the  bonds;  the  absence  of  any  charge 
connecting  the  defendants,  the  directors,  with  the  delivery  of  fchem 
to  the  plaintiffs  ;  the  absence  of  allegation  or  charge  showing  the 
plaintiffs  to  be  bond  fide  holders  for  value,  and  the  absence  of  any 
representation    by  the  defendants,  the   directors,  aside  from  the 
bonds  themselves,  which  explained  their  design  and  purpose  suf- 
ficiently to  notify  the  purchaser  or  person  taking  them  of  their 
character,  or  that  he  should  examine."     In  conclusion,  the  court 
remark  that  it  is  not  intended  by  the  result  to  justify  the  proceed- 
ing complained  of;  that  fust   mortgage  bonds  ought  to  mean  first 
mortgage  bonds,  and  should  not  be  issued  until  all  the  prelimina- 
ries  to  make  them  such  have  been  observed  and  performed. 

204.  A  bond  of  a  corporation  for  the  payment  of  money,  ne- 
gotiable in  form  but  delivered  with  the  name  of  the  payee  in 
blank,  may  he  filled  in  with  tin-  name  of  the  holder  and  sued  in 
his  name.2     In  England  the  law  has  1 a  settled  otherwise,  upon 

r.  N.  Y.,  Kingston  &  Syracuse        -  White  v.  Vi.   S    M         B.  B.  Co.  21 

R.  k.  Co.  in  Hun  (X.  X\),295.  How.  575  ;  Chapin  >-.  X \  B.  B. 

is:) 


§  205.]  MORTGAGE    BONDS   OF   CORPORATIONS. 

the  principle  that  the  authority  of  an  agent  to  make  a  deed  for 
another  must  be  by  deed,  and  that  he  cannot  fill  the  blank,  either 
under  an  implied  or  express  parol  authority  from  the  maker. 
Baron  Parke,  in  a  case  where  a  certificate  of  stock  was  issued  and 
filled  up  in  this  way,  said  : 1  "  This  is  an  attempt  to  make  a  deed 
transferable  and  negotiable  like  a  bill  of  exchange,  or  exchequer 
bill,  which  the  law  does  not  permit."  But  in  this  country,  so  far 
as  corporate  bonds  for  the  payment  of  money  are  concerned,  this 
objection  has  no  weight.  On  the  contrary,  the  negotiable  quality 
of  such  instruments  is  regarded  as  one  of  their  chief  advantages, 
and  this  quality  has  been  established  by  long  usage.  When, 
therefore,  a  corporation  issues  bonds  in  blank,  it  is  plainly  its  in- 
tention to  become  bound  to  every  person  by  whom  any  of  the 
bonds  may  be  h olden  ;  and  the  implication  is  unavoidable  that 
the  corporation  consents  that  any  bond  fide  holder  for  value  may 
perfect  the  contract  by  inserting  at  his  own  pleasure  his  name 
as  obligee  of  the  bond  in  the  blank  space  which  has  been  left  for 
that  purpose.  "  In  other  words,"  says  Mr.  Justice  Nelson,2  "  the 
company  intended,  by  the  blank,  to  leave  the  holder  his  option  as 
to  the  form  or  character  of  negotiability,  without  restriction.  If 
the  utmost  latitude,  in  this  respect,  was  not  intended,  why  leave 
the  payee  in  blank  when  issuing  the  bonds,  or  why  not  fix  the 
limit  of  negotiability,  or  negative  it  altogether  ?  To  adopt  any 
other  conclusion  would  seem  to  us  to  be  unjust  to  the  company, 
for  then  the  blank  would  be  wholly  unmeaning  ;  or,  if  any,  a 
meaning  calculated,  if  not  intended,  to  embarrass  the  title  of  the 
holder." 

205.  A  condition  indorsed  upon  debenture  bonds  that  at 
stated  times  a  portion  of  the  bonds  should  be  drawn  and  paid 
off  was  held  to  prevent  their  being  negotiable  at  law,  although  in 
terms  made  payable  to  bearer  ;  and  moreover  it  was  held  that  it 
was  not  competent  for  corporations  to  attach  the  incident  of  ne- 
gotiability to  such  instruments  contrary  to  the  general  law ;  and 
that  the  custom  to  treat  them  as  negotiable,  being  of  recent  origin, 

Co.  8  Gray  (Mass.),  575;  Dutchess  Co.  Ins,  W.  200;  and  see  Enthoven  v.  Hoyle,  13 

Co.  v.  Hachfield,  1  Hun  (N.  Y.),  675  ;  5.  C  C.  B.  373. 

47  How.  Pr.  (N.Y.)  330;  and  see  Michigan  2  In  White  v.  Vt.  &  Mass.  R.  R.  Co. 

Bank  v.  Eldred,  9  Wall.  544.  supra. 
1  Hibblewhite  v.  M'Morine,  6  Mees.  & 

184 


THEIR   NEGOTIABILITY.  [§  205. 

and  not  the  law  merchant,  made  no  difference,  as  such  a  custom, 
though  general,  could  not  attach  an  incident  to  a  contract  contrary 
to  the  general  law.1  This  decision  was,  however,  questioned  by 
the  Court  of  the  Exchequer  Chamber,2  which,  after  observing 
that  no  evidence  was  offered  at  the  trial  in  that  case  as  to  whether 
these  or  similar  documents  were  in  practice  treated  as  negotiable, 
and  that  no  express  admission  was  made  as  to  the  point,  said : 
"  While  we  quite  agree  that  the  greater  or  less  time  during  which 
a  custom  has  existed  may  be  material  in  determining  how  far  it 
has  generally  prevailed,  we  cannot  think  that,  if  a  usage  is  once 
shown  to  be  universal,  it  is  the  less  entitled  to  prevail  because  it 
may  not  have  formed  part  of  the  law  merchant  as  previously  rec- 
ognized and  adopted  by  the  courts.  It  is  obvious  that  such  rea- 
soning would  have  been  fatal  to  the  negotiability  of  foreign  bonds, 
which  are  of  comparatively  modern  origin,  and  yet,  according  to 
Grorgier  v.  Mieville^  are  to  be  treated  as  negotiable.  We  think 
the  judgment  in  Crouch  v.  The  Credit  Foncier  may  well  be  sup- 
ported on  the  ground  that  in  that  case  there  was  substantially  no 
proof  whatever  of  general  usage.  We  cannot  concur  in  thinking 
that  if  proof  of  general  usage  had  been  established  it  would  have 
been  a  sufficient  ground  for  refusing  to  give  effect  to  it  that  it  did 
not  form  part  of  what  is  called  '  the  ancient  law  merchant.'  ' 

The  case  in  the  Exchequer  Chamber  arose  with  reference  to  scrip 
issued  in  England  by  the  agent  of  a  foreign  government  upon  the 
payment  of  the  first  instalment  of  a  subscription  to  bonds  after- 
wards to  be  issued.  The  scrip  was  in  terms  payable  to  bearer, 
and  by  the  usage  of  bankers  and  dealers  in  public  securities  was 
transferable  by  mere  delivery  :  and  the  court  decided  that  it  passed 
by  such  delivery  to  a  bond  fide  holder  for  value.4 

This  case  must  be  regarded  as  deciding,  after  considerable. 
conflict  of  authority,  that  instruments  payable  to  "  bearer,"  or 
"holder,"  or  "transferee,"  or  "order,"  and  the  like,  which  by 
usage  are  transferable  by  delivery,  are  inlaw  fully  negotiable. 

1  Crouch  v.  Credit  Foncier  of  England,  pounds,  being  the  first  instalment  oftwen- 

L.  R.  8Q    B.  374.  ty   per  cent,  upon  one   hundred   pounds 

odwin  v.    Robarts,  L.  R.  10  Ex.  stock;  and  on  payment  of  the  remaining 

337.  instalments   at  the   period   specified,   the 

3  3  B,  &  C.  45.  bearer  will  be  entitled  to  receive  a  defini- 

4  The  scrip  was  in  the  following  terms:  tive  bond  or  bonds  for  one  hundred  pounds, 
"Scrip  for  one  hundred  pounds  stock,  after  receipt  thereol  from  the  imperial 
No.  .    Received  the   sum   of  twenty  government." 

1 85 


§§  206,  207.]       MORTGAGE   BONDS    OF    CORPORATIONS. 

206.  Bonds  of  a  corporation  payable  to  a  person  named 
"  or  assigns  "  are  assignable  at  law,  so  as  to  enable  the  holder 
to  maintain  an  action  in  his  own  name  only  by  an  indorsement  in 
writing  by  the  obligee.1  In  equity  they  may  be  assigned  by  de- 
livery merely  ;  but  then  an  action  upon  them  must  be  brought  in 
the  name  of  the  obligee. 

Although  the  instrument  be  not  strictly  negotiable  at  law,  yet 
if  it  contains  anything  to  show  that  the  parties  intended  to  re- 
nounce the  ordinary  rule  that  the  assignee  of  a  chose  in  action 
takes  it  subject  to  the  equities  between  the  original  parties,  or  if 
the  company  making  it  has  held  it  out  to  the  world  as  free  from 
such  equities,  the  company  is  barred  from  subsequently  setting  up 
such  equities.  Thus,  where  debentures  payable  to  a  person,  "  his 
executors,  administrators,  and  assigns,"  were  issued  to  a  share- 
holder in  the  company  who  assigned  them,  it  was  held  in  a  suit 
against  the  company  by  the  assignee  that  the  company  could  not 
set  up  in  defence  the  claim  that  the  original  holder  was  indebted 
for  unpaid  calls  upon  his  shares,  and  that  by  the  articles  of  asso- 
ciation the  company  had  a  primary  lien  on  the  debentures  of  any 
member  who  might  be  indebted  to  it.  It  was  contemplated  that 
the  original  holder  should  assign  the  debentures  if  he  saw  fit, 
and  that  he  could  not  practically  do  if  they  were  subject  to  the 
equity  claimed.2 

207.  A  purchaser  of  negotiable  bonds  before  due,  for  a 
valuable  consideration,  in  good  faith  and  without  actual  knowl- 
edge or  notice  of  any  defect  of  title,  holds  them  by  a  title  valid  as 
against  every  other  person.3  Even  gross  negligence  at  the  time 
of  purchase  does  not  alone  defeat  the  purchaser's  title.  A  pur- 
chaser may  have  had  suspicion  of  a  defect  of  title,  or  knowledge 
of  circumstances  which  would  excite  such  suspicion  in  the  mind 

1  Bunting  v.  Camden  &  Atlantic  R.  R.  fully  examined  ;  Scybel  v.  National  Cur- 
Co.  81  Pa.  St.  254;  15  Am.  Railvv.  R.  rency  Bank,  54  N.  Y.  288  ;  Dutchess  Co. 
570;  Hubbard  v.  N.  Y.  &  Harlem  R.  R.  Ins.  Co.  v.  Hachfield,  1  Hun  (N.  Y.),  075  ; 
Co.  36  Barb.  (N.  Y.)  286.  47  How.  Pr.  (N.  Y.)  330;  Madison  &  In- 

2  Higgs  v.  Northern  Assam  Tea  Co.  L.  dianapolis  R.  R.  Co.  v.  Norwich  Saving 
R.  4  Ex.  387,  396.  See,  also,  Crouch  v.  Soc.  24  Iud.  457  ;  New  Orleans,  Jackson 
Credit  Fonder  of  Eng.  L.  R.  8  Q.  B.  385  ;  &  Great  Northern  R.  R.  Co.  v.  Mississippi 
Goodwin  v.  Robarts,  L.  R.  10  Ex.  337.  College,  47  Miss.  560  ;  Belo  v.  Com'rs  of 

3  Imperial  Land  Co.  of  Marseilles  in  re,  Forsythe  Co.  76  N.  C.  489. 
11  Eq.  478,  where  the  English  cases  are 

186 


THEIR    NEGOTIABILITY.  [§   208. 

of  a  prudent  man  ;  or  he  may  have  disregarded  notices  of  stolen 
bonds  ;  and  yet  if  lie  has  purchased  for  value  in  good  faith,  his 
title  cannot  be  impeached.  Such  suspicion,  or  ground  of  suspi- 
cion, or  of  knowledge  on  his  part,  may  be  evidence  of  bad  faith  ; 
but  before  his  title  can  be  impeached  his  bad  faith  must  be  es- 
tablished.    It  must  be  shown  that  he  did  not  purchase  honestly.1 

It  is  a  presumption  of  law  that  the  person  presenting  a  nego- 
tiable bond  is  a  bond  fide  holder,  and  until  evidence  is  introduced 
tending  to  negative  that  presumption,  he  is  under  no  obligation 
of  proving  himself  a  bond  fide  holder.2  If  his  good  faith  is  de- 
nied by  the  answer,  he  is  entitled  to  show  by  affirmative  evidence 
that  he  is  a  bond  fide  holder.3 

A  bond  fide  purchaser  of  stolen  bonds  who  pays  full  value  for 
them  in  the  regular  course  of  business,  before  their  maturity,  ac- 
quires good  title  to  them,  and  to  such  of  the  coupons  as  were  not 
overdue  at  the  date  of  his  purchase.  In  a  suit  by  the  purchaser 
upon  such  bonds,  the  burden  of  proof  that  he  did  not  acquire 
them  in  good  faith  is  upon  the  defendant.4  The  fact  that  the 
real  owner  gave  immediate  notice  by  publication  of  the  fact  that 
the  bonds  had  been  stolen  does  not  affect  the  title  of  a  subsequent 
purchaser  for  value.5  It  is  usual  for  bankers  and  brokers  upon 
receiving  notice  of  such  thefts  to  retain  the  memorandum  for  the 
purpose  of  identification  of  the  bonds,  should  they  be  presented  ; 
but  there  is  no  legal  obligation  upon  them  to  do  so  :  and  if  they 
keep  such  notices,  the  mere  omission  to  look  for  them  twelve 
months  after  publication  is  no  proof  of   bad  faith.6 

208.  A  purchaser  of  negotiable  securities  before  maturity- 
can  recover  against  the  maker  the  full  amount  of  them, 
although  In-  may  have  paid  less  than  their  par  value  for  them. 
Whatever  may  have  been  their  original  infirmity,  he   is  not  lim- 

i  Murray  <•.  Gardner,  2  Wall.  110  ;  Gal-  Newport,  66  X  Y.  14  ;  Seybel  v.  Nat.  Cur- 

vestonR.R.Co.v.  Cowdrey,  11  Wall.  459,  rency  Hank,  2  Daly  (X.  Y.),  383;  S.  C. 

478.  54  X.  Y.  288;  Carpenter  v.    Rommel,   5 

2  Kennicott  v.  Supervisors  of  Wayne  Phila.    (Pa.)   34;  Consolidated    Ass'n    v. 

County,  6  Biss.   138;  Wickes  v.  Adiron-  Numa  Avegno,  28    La.   Ann.    552;  Cali- 

0.  2  Hun  !\.  Y.j,  1 12.  fornia  v.  Well  ,  15  Cal 

unty  of  Mar. .11  ,-.  Shores,  tj.  S.  Su-        B  Seybel  v.  Nat.  Currency  Bank,  supra ; 

preme  Ct.  17  Albany  Law  J.  35.  Murray  v.  Lardner,  2  Wall.  1  10, 

*  Gilbough  v.  Norfolk        Petersburg  R.        '■  Raphael  v.  Bank  of  Englund,  17  C.B. 

R.  Co.  1  Hughes, 410;  Spoonerv.  Holmes,  161;  Vermilye  v.  Adam    1 

102  Mass.  503  ;  Evert  on  v.  Nat.  Hank  of  Wall. 

is? 


§  208.]        MORTGAGE  BONDS  OF  CORPORATIONS. 

ited  in  his  recovery  upon  them  to  the  amount  lie  paid  his  vendor, 
unless  he  is  personally  chargeable  with  fraud  in  procuring  them. 
"  We  are  aware,"  said  Mr.  Justice  Field,  speaking  for  the  Su- 
preme Court  of  the  United  States,1  "  of  numerous  instances  in 
conflict  with  this  view  of  the  law  ;  but  we  think  the  sounder  rule, 
and  the  one  in  consonance  with  the  common  understanding  and 
usage  of  commerce,  is,  that  the  purchaser,  at  whatever  price,  takes 
the  benefit  of  the  entire  obligation  of  the  maker.  Public  securi- 
ties, and  those  of  private  corporations,  are  constantly  fluctuating 
in  price  in  the  market,  one  day  being  above  par  and  the  next 
below  it,  and  often  passing  within  short  periods  from  one  half  of 
their  nominal  to  their  full  value.  Indeed,  all  sales  of  such  securi- 
ties are  made  with  reference  to  prices  current  in  the  market,  and 
not  with  reference  to  their  par  value.  It  would  introduce,  there 
fore,  inconceivable  confusion  if  bond  fide  purchasers  in  the  market 
were  restricted  in  their  claims  upon  such  securities  to  the  sums 
they  had  paid  for  them.  This  rule  in  no  respect  impinges  upon 
the  doctrine  that  one  who  makes  only  a  loan  upon  such  paper,  or 
takes  it  as  collateral  security  for  a  precedent  debt,  may  be  lim- 
ited in  his  recovery  to  the  amount  advanced  or  secured." 

Bond  fide  holders  of  negotiable  bonds  are  presumed  to  hold 
them  for  their  full  value,  and  their  title  can  be  impaired  only  by 
specific  allegations  distinctly  proved.2 

The  fact  that  a  merchant  has  taken  bonds  from  a  railroad  com- 
pany in  payment  for  goods  does  not  of  itself  prevent  him  from 
being  a  bond  fide  holder.  The  goods  may  be  as  valuable  to  the 
company  as  money.3  To  affect  the  good  faith  of  the  transaction, 
there  must  be  circumstances  showing  that  the  purchaser  knew 
there  was  a  corrupt  or  fraudulent  motive  on  the  part  of  the  offi- 
cer of  the  company  in  transferring  the  bonds.  The  purchaser  of 
negotiable  bonds  has  nothing  to  do  with  the  application  of  the 
proceeds  of  the  purchase,  if  he  has  no  knowledge  of  any  intended 
misapplication  of  them.4 

After  bonds  have  passed  from  the  hands  of  the  person  to  whom 

1  Cromwell  v.  County  of  Sac,  96  U.  S.  2  Bronson  v.  La  Crosse  &  Milwaukee  B. 

51,60;  and  see  Chicopee  Bank  v.  Chapin,  B.  Co.  2  Wall.  283;  Wickes  v.  Adiron- 

8  Met.  (Mass.)  40  ;   Stoddard  v.  Kimball,  dack  Co.  2  Hun  (N.  Y.),  112. 

6  Cush.  Mass.)  469;  Williams  v.  Smith,  3  Kennicott   v.    Supervisors   of  Wayne 

2   Hill  (N.  Y.),  301  ;  Lay  v.  Wissman,  36  County,  6  Bi<s.  138. 

Iowa,  305.     Contra,  Diamonds.  Lawrence  4  Philadelphia  &  Sunbury  B.  B.  Co.  v. 

County,  37  Pa.  St.  353.  Lewis,  33  Pa.  St.  33. 
188 


THEIR   NEGOTIABILITY.  [§§  209,  210. 

they  were  issued  into  the  hands  of  bond  fide  holders,  the  corpora- 
tion which  issued  them  cannot  set  off  against  the  bonds  a  claim 
for  damages  against  the  original  holder  ;  as  for  instance  where 
the  bonds  were  issued  to  a  contractor,  damages  for  not  finishing 
the  road  in  the  time  specified  by  contract  cannot  be  set  up  as 
against  bond  fide  purchasers  of  the  bonds.1 

209.  A  bona  fide  purchaser  of  bonds  which  a  company  has 
pledged  for  a  loan  can  hold  them  against  the  company  for  at 
least  the  amount   he  has  paid  for  them.     Thus,  the  Grand  Rap- 
ids and  Indiana  Railroad  Company,  through  its  president,  bor- 
rowed money  of  its   New  York  agents,  and   pledged  with  them 
the  bonds  of  the  company  to  a  large  amount  as  security  for  the 
loan  of  an  inconsiderable  amount.     The  agents,  without  author- 
ity, sold  the  bonds  or  exchanged  them  for  real  estate,  and  the 
first  purchasers  resold  them.     In   an  action  by  the  company  to 
recover  the  bonds,  it  was  held  that  the  amount  actually  paid  them 
by  the  purchaser  might  be  taken  into  consideration  in  determin- 
ing his  good  faith.2     At  the  time  of  the  second  sale  there  were 
overdue  coupons  upon  the  bonds,  which  provided  that  after  six 
months'  default  the  whole  principal  sum  should  immediately  there- 
after become  due  and  payable.      Whether  this  condition  had  the 
effect  to  make  the  bonds  overdue  it  was  unnecessary  to  decide, 
because  the  first  purchaser,  having  bought  them  in  good  faith  be- 
fore maturity,  he  could  give  a  good  title  to  one  purchasing  from 
him  in  good  faith  after  maturity.     The  unpaid  coupons  did  not 
necessarily  affect  the  purchaser  with  notice  or  knowledge  of  any 
facts  by  which  the  validity  of  the  bonds  was  made  questionable. 
The  interest   might  well   remain  unpaid,  not  from   any  infirmity 
in  the  bonds  themselves,  but  through  want  of  means  in  the  com- 
pany to  pay  them.     Under  the  circumstances  of  the  case,  it  was 
determined  that  the  last  purchaser  was  entitled  to  hold  the  bonds 
for  the  amount  he  paid  for  them,  although   this  amount  was  in 
excess  of  the  sum  originally  borrowed  by  the  company  upon  them  ; 
but  that  the  company  might  recover  them  upon  the  payment  of 
this  amount. 

210.  Purchasers    of    bonds    are  not    put    to    their    inquiry 

i  McElrath  v.  Pittsburg  &  Steubenville        -  Grand    Rapids  &  [ndiana  R.  R.  Co. 

It.  Ii.  Co.  55  lJu.  St.  L89.  v.  Banders,  54  Bow.  (N.  V.)  Pr  21  i 

L89 


§  211.]        MORTGAGE  BONDS  OF  CORPORATIONS. 

whether  the  bonds  were  issued  simultaneously  with  the  mort- 
gage by  which  they  are  secured.  The  mortgage,  when  recorded, 
is  notice  to  all  who  may  acquire  liens  upon  it  afterwards  of  the 
debt  secured.  "  The  bonds  are  payable  to  bearer,  and  are  in- 
tended to  be  negotiated  for  the  purpose  of  raising  money  to  con- 
struct the  road.  If  the  purchaser  of  a  bond  in  New  York,  in 
Amsterdam,  or  London,  is  bound  to  inquire  whether  the  bond  in 
fact  was  executed  by  the  company  contemporaneous^  with  the 
execution  of  the  mortgage,  or  whether  before  the  signing  or  the 
negotiating  of  the  bonds  liens  of  laborers  or  material-men  may 
not  have  attached  to  the  road,  it  is  apparent  that  the  value  of 
these  securities  would  be  much  depreciated,  and  all  industries 
which  depend  upon  the  raising  of  means  through  negotiation 
would  be  paralyzed."  1 

III.  Incomplete  and  altered  Bonds. 

211.  Bonds  incomplete  when  put  in  circulation  are  not  en- 
titled to  the  privileges  of  negotiable  paper.  While,  as  a  general 
rule,  bonds  issued  by  a  corporation,  and  payable  to  bearer,  have 
the  qualities  of  negotiable  instruments,  and  are  good  in  the  hands 
of  bond  fide  holders  for  value,  the  rule  is  predicated  of  bonds  that 
are  duly  executed,  and  are  free  from  any  defect  by  reason  of  any 
uncertainty  in  any  essential  requisite  of  a  negotiable  instrument. 
An  uncertainty  in  the  amount  of  the  principal  or  interest  of  a 
bond  deprives  it  of  the  quality  of  a  negotiable  instrument.  This 
point  is  illustrated  by  the  case  of  certain  bonds  of  the  Vicksburg, 
Shreveport,  and  Texas  Railroad  Company,  which  were  taken  from 
the  office  of  the  company  at  Monroe,  in  the  State  of  Louisiana, 
in  April,  1864,  at  the  time  of  a  raid  of  the  naval  forces  of  the 
United  States  upon  that  town,  during  the  war  against  the  seced- 
ing states,  and  carried  off  by  persons  connected  with  the  expe- 
dition, without  the  consent  of  the  officers  of  the  company,  and 
afterwards  put  in  circulation.  The  face  of  the  bonds  certified 
that  the  company  "  is  indebted  to  John  Ray,  or  bearer,  for  value 
received,  in  the  sum  of  either  two  hundred  and  twenty-five  pounds 
sterling,  or  one  thousand  dollars  lawful  money  of  the  United 
States  of  America ;  namely,  two  hundred  and  twenty-five  pounds 
sterling,  if  the  principal  and  interest  are  payable  in  London,  and 
one  thousand  dollars  lawful  money  of  the  United  States  of  Amer- 
1  Nelson  v.  Iowa  Eastern  R  R  Co.  8  Am.  Railway  Rep.  82,  88,  per  Day,  J. 

190 


INCOMPLETE    AND    ALTERED    BONDS.  [§  212. 

ica,  if  the  principal  and  interest  are  payable  in  New  York  or 
New  Orleans."  They  further  declared  that  the  president  of  the 
company  is  authorized  to  fix  by  his  indorsement  the  place  of  pay- 
ment of  principal  and  interest  of  the  bonds.  On  the  back  of 
each  of  the  bonds  was  an  indorsement  as  follows :  "  I  hereby 
agree  that  the  within  bond  and  the  interest  coupons  thereto  at- 
tached shall  be  payable  in ,"  signed  by  the  president.     The 

coupons  declared  that  the  company  would  pay  nine  pounds  ster- 
ling, if  payable  in  London,  or  forty  dollars,  if  payable  in  New 
York  or  New  Orleans. 

Upon  a  bill  in  equity  to  sell  the  road  under  a  mortgage  secur- 
ing the  bonds,  it  was  claimed  that  the  uncertainty  in  the  amount 
of  the  bonds  was  cured  by  the  signature  of  the  president  of  the 
road  to  the  indorsement  upon  the  bonds,  although  that  left  the 
place  of  payment  blank  ;  and  that  the  indorsement  in  this  form 
authorized  the  holder  to  fill  the  blank,  and  thus  render  the  amount 
of  the  bond  definite  and  certain.  But  the  court  held  that  what- 
ever might  have  the  effect  of  a  delivery  of  the  bonds  in  this  form 
by  the  company,  the  bonds  having  been  stolen,  they  carried  no 
implied  authority  to  a  subsequent  bond  fide  holder  for  value  to 
fill  the  blank,  and  thus  perfect  the  bonds ;  and  consequently  the 
bonds  were  subject  to  all  the  infirmities  which  attached  to  the 
title  to  them.1 

212.  Ledwick  v.  McKim.2 — In  an  action  to  recover  the  pur- 
chase money  of  some  of  the  same  bonds,  the  Court  of  Appeals  of 
New  York  also  held  that  they  were  incomplete  instruments,  and 
therefore  not  within  the  rules  which  protect  bond  fide  holders  for 
value  of  negotiable  commercial  paper.  A  negotiable  instrument 
must  be  complete  and  perfect  when  it  is  issued,  or  there  must  be 
authority  reposed  in  some  one  afterward  to  supply  what  is  needed 
to  make  it  perfect.  It  was  evident  upon  the  face  of  these  bends 
that  they  were  meant  to  have  a  specific  place  of  payment,  and 
that  tin;  kind  of  national  money  in  which  they  were  to  be  paid, 
and  the  amount  thereof,  were  also  to  be  specific,  and  that  all  of 
this  was  yet  to  be  specified  when  they  came  into  and  passed  out 
of  the  hands  of  the  defendants.  An  exact  place  of  payment, 
when  a  place  of  payment  la  meant  to  be  fixed,  and  an  exact  amount 

1  Jackson  v.  Vicksburrr,  Shreveporl  &        -  53  N.  Y.  807. 
Texas  i;.  i:.  Co.  -'  Woods,  141. 

19] 


§  212.]  MORTGAGE    BONDS   OF    CORPORATIONS. 

to  be  paid,  are  essential  parts  of  a  negotiable  instrument.  These 
bonds  were  not  perfect  when  they  passed  from  the  possession  of 
the  defendants  to  the  plaintiff ;  for  it  was  not  then  determined 
where  they  were  to  be  paid,  nor  in  what  national  money  they 
were  to  be  paid.  The  corporation  had  given  power  to  their  pres- 
ident to  fill  this  blank,  which  power  he  had  not  exercised.  The 
defendants  contended  that  they,  or  any  holder  of  the  bonds,  were 
authorized  to  fill  the  blank.  Such  authority  must  be  either  ex- 
press or  implied  from  an  actual  delivery  for  future  use  of  the  in- 
strument, though  still  in  its  imperfect  condition.  "As  to  an 
express  authority,"  said  Judge  Folger,  "  there  can  be  no  question 
or  doubt.  The  implied  authority  is  found  in  the  fact  of  delivery 
for  use.  For  as  it  is  not  to  be  presumed  that  the  delivery  for  use 
was  meant  to  be  a  nugatory  and  unavailing  act,  and  as  it  is  appar- 
ent that  it  would  be  if  the  instrument  may  not  be  perfected  be- 
fore put  to  use,  the  law  implies  an  intention,  and  hence  an  author- 
ity, that  he  to  whom  it  is  thus  delivered  may  supply  all  needs  for 
making  it  a  perfect  and  binding  negotiable  instrument.  But  this 
authority  is  implied  from  the  fact  alone  that  the  paper  is  in  hands 
other  than  those  of  him  who  is  to  be  bound  ;  but  from  that  fact, 
joined  with  this  other  fact,  that  it  has  been  by  him  intrusted  to 
those  hands  for  the  purpose  and  with  the  intent  that  it  shall  go 
into  use  and  circulation.  And  an  express  authority,  though  it  be 
limited,  if  it  be  exceeded  by  the  one  in  whom  confidence  has  been 
reposed,  renders  the  party  to  the  instrument  liable  to  a  bond  fide 
holder  for  value,  on  the  principle  that  of  two,  one  of  whom  must 
suffer  by  the  wrongful  act  of  a  third,  it  should  be  he  who  has 
enabled  the  wrongful  act  to  be  done.  But  there  cannot  be  an 
enabling  of  the  wrongful  act  unless  there  be  assisting  action  of 
the  party  to  the  instrument  who  is  sought  to  be  bound,  and  there 
must  be  that  in  his  conduct,  in  relation  to  the  paper,  which  shows 
a  parting  with  the  possession  of  it  for  use,  or  with  a  confidence  in 
him  to  whom  it  is  delivered."  But  in  this  case,  the  bonds  having 
been  stolen  while  still  in  the  possession  of  the  corporation,  no 
implication  o£  authority  to  fill  the  blank  could  arise. 

Thus,  also,  where  bonds  were  stolen  which  were  at  the  time 
incomplete,  being  without  the  seal  of  the  company,  and  the  cer- 
tificate of  the  Union  Trust  Company,  which  the  mortgage  made 
requisite  to  their  validity,  and  subsequently  the  seal  and  the  cer- 
tificate, were  forged  and  affixed  to  the  bonds,  it  was  held  that  a 
192 


INCOMPLETE  AND  ALTERED  BONDS.  [§  213. 

purchaser  for  value  and  in  good  faith  could  not  recover  from  the 
company   thereon,   or   compel   the   issue  of  other  bonds  in   their 

place.1 

213.  The  effect  of  an  over-issue  of  bonds  under  a  mortgage 
depends  largely  upon  the  condition  of  the  equity  of  redemption. 
If  that  has  been  incumbered  by  subsequent  mortgages  or  liens, 
which  are  entered  of  record,  the  prior  mortgage  is  good  against 
them   for  only  the  amount  that  appears  of   record  to  be  a  lien. 
The  company  itself  may  be  estopped  to  claim  that  the  bonds  issued 
in  excess  of  the  amount  of  the  mortgage  as  recorded  are  not  in 
fact  secured  by  it  ;  and  others  in  privity  with  the  company,  and 
not  having  any  recorded  lien,  may  be  bound  by  the  same  estoppel. 
The   Covington   and   Lexington    Railroad    Company   executed    a 
mortgage  to  secure  four  hundred  of  its  bonds  for  $1,000  each.    By 
mistake,  the  company  issued  and  sold  four  hundred  and  twenty 
bonds,  of  which  one  hundred  and  sixty  were  six  per  cent,  bonds, 
and  two  hundred  and  sixty  were  seven  per  cent,  bonds.     Instead 
of  numbering  them  from  1  to  420,  which  would  have  made  the 
mistake   manifest,  the  company  numbered  each  class  separately 
from  1  to  1G0  and  from  1  to  260.     To  each  bond  was  attached  a 
certificate  showing  that  it  was  secured  by  mortgage,  and  that  the 
amount  of  the  bonds  issued  and  to  be  issued  was  not  to  exceed 
8100,000.     The  holders  of  the  twenty  extra  bonds  bought  them 
in  ignorance  of  the  over-issue.     The  company  afterwards  executed 
other  mortgages  which  were  recorded,  and  also  income  bonds  which 
were  not  secured  by  any  recorded  instrument.     The  property  of 
the  company  having  afterwards  been  sold,  and  the  proceeds  being 
insufficient  to  pay  all  these  debts,  the  question  arose   as  to  the 
rights  of  the  holders  of  these  twenty  bonds  over-issued.      It  was 
held    that   the    company   was    estopped    from   denying   that   these 
bonds  were  secured  by  the  mortgage;  and  that  this  mortgage  by 
estoppel    gave   to  the  holders  of    these  bonds   an    equitable    lien, 
which,  i  hough  unrecorded,  was  superior  to  the  lien   ol    the   unre- 
corded income  bonds  subsequently  issued.    In  a  contest   between 
equities,  seniority  prevails  ;  and  it  is  immaterial  that   the  holders 
of  the  income  bonds  had  no  notice  of  the  over-is  ae  and  of  the 
pppel  of  tin-  company  .- 

i  Mass  v.  Mo.,  Kansas  &  Texas  By.  Co.        "Stephens   v.    Benton,    I    Duv. 
11  Bun  (N.  V.),  8.  112. 

ia  L93 


§  214.]  MORTGAGE    BONDS    OF    CORPORATIONS. 

214.  The  numbering  of  bonds  does  not  ordinarily  give  the 
holders  of  the  lower  numbers  any  preference  over  the  holders 
of  the  higher,  when  there  1ms  been  an  over-issue  of  bonds  beyond 
the  amount  provided  for  by  the  mortgage.  All  bond  fide  holders 
for  value  stand  upon  the  same  footing.  The  Alabama  and  Chat- 
tanooga-Railroad Company,  a  corporation  of  the  State  of  Alabama, 
was  chartered  to  construct  a  road  from  Chattanooga,  in  the  State 
of  Tennessee,  across  the  States  of  Georgia  and  Alabama  to  Me- 
ridian, in  the  State  of  Mississippi.  An  act  of  the  legislature  of 
Alabama  :  required  the  governor  of  the  state,  whenever  any  rail- 
road company  of  the  state  should  have  finished,  equipped,  and 
completed  twenty  continuous  miles  of  railroad,  to  indorse  on  the 
part  of  the  state  the  first  mortgage  bonds  of  the  railroad  com- 
pany to  the  amount  of  sixteen  thousand  dollars  per  mile,  for  the 
portion  thus  finished  and  completed,  and  to  indorse  the  same 
bonds  at  the  rate  of  sixteen  thousand  dollars  per  mile  for  each 
section  of  five  miles  subsequently  completed  and  equipped.  The 
act  also  applied  to  railroads  constructed  beyond  the  limits  of  the 
State  of  Alabama  by  any  railroad  company  organized  under  the 
laws  of  the  state.  The  act  further  provided  that  the  bonds  should 
not  be  indorsed  by  the  governor  until  the  president  and  chief 
engineer  of  such  company,  upon  oath,  showed  that  the  conditions 
of  the  act  had  been  complied  with  in  all  respects.  Soon  after  the 
passing  of  this  act  the  above  named  company  conveyed  to  trustees, 
to  secure  its  first  mortgage  bonds,  its  entire  road,  together  with  all 
its  other  property,  equipments,  and  franchises.  The  mortgage 
recited  that  the  bonds  to  be  secured  were  to  be  issued  at  the  rate 
of  sixteen  thousand  dollars  per  mile  of  its  road.  Bonds  of  $1,000 
each,  to  the  number  of  5,220,  purporting  to  be  secured  by  this 
mortgage,  and  all  bearing  the  same  date,  were  issued.  Each  bond 
recited  on  its  face  that  it  was  one  of  a  series  of  numbered  bonds 
issued  in  accordance  with  the  above  mentioned  statute,  and  se- 
cured by  an  indorsement  of  the  State  of  Alabama,  and  by  a  first 
lien  upon  the  entire  road  and  property  of  the  railroad  company. 
Each  bond  also  bore  the  indorsement  of  the  Governor  of  Alabama, 
with  the  recital  that  the  company  had  complied  with  the  condi- 
tions prescribed  by  law  upon  the  performance  of  which  the  gov- 
ernor was  required  to  make  such  indorsement.  Upon  each  bond 
was  also  indoi'sed  a  certificate  signed  by  the  trustees  named  in 
i  Approved  Sept.  22,  1868  ;  Rev.  Code  of  Ala.  1867,  §§  1417,  1422. 

194 


INCOMPLETE   AND    ALTERED   BONDS.  [§  214. 

the  mortgage,  that  the  bond  was  one  of  the  series  of  first  mort- 
gage bonds  described  in  and  secured  by  the  mortgage  deed.  Upon 
a  subsequent  default  the  mortgage  was  foreclosed,  and  at  the  sale 
the  property  was  bid  in  by  the  trustees  for  the  benefit  of  the  bond- 
holders. 

It  appeared  by  evidence  in  the  case,  not  disputed,  that  the 
length  -of  the  road  from  Chattanooga  to  Meridian  was  only  two 
hundred  and  ninety-five  miles.  At  the  rate  of  sixteen  thousand 
dollars  per  mile,  the  mortgage  authorized  the  issue  of  4,720  bonds 
of  $1,000  each,  and  the  governor  was  authorized  to  indorse  only 
that  number,  —  but  in  fact  did  indorse  the  whole  number  issued, 
being  five  hundred  more  than  was  authorized.  The  holders  of 
the  bonds  bearing  numbers  higher  than  4,720  applied  to  the  court 
for  leave  to  file  their  bonds  and  become  sharers  in  the  title  to  the 
property  bought  by  the  trustees.  Their  petition  was  resisted  by 
the  holders  of  bonds  bearing  lower  numbers,  upon  two  grounds: 
first,  because  the  petitioners  holding  the  high  numbered  bonds 
were  put  on  notice  of  the  fact  that  their  bonds  were  not  secured 
by  the  mortgage ;  and,  second,  because  by  the  very  terms  of  the 
mortgage  these  bonds  were  not  secured  by  it. 

To  the  first  position  the  court  replied  : 1  "  The  power  of  the 
railroad  company  to  issue  bonds  was  unlimited.  It  could  issue 
as  many  as  it  chose.  The  bonds  are  therefore  binding  upon  the 
rail  load  compan}r.  Were  the  holders  of  the  bonds  put  upon  suf- 
ficient notice  of  the  facts  that  bonds  held  by  them  were  not  se- 
cured by  the  mortgage  ?  The  holders  of  the  bonds  were  bound 
to  take  notice  of  what  was  contained  in  or  indorsed  upon  their 
bonds  :  fchey  were  bound  to  take  notice  of  what  was  contained  in 
feheir  Ai^-ti  of  mortgage,  and  of  the  laws  of  the  stale  referred  to  in 

the  deed  of  mortgage It  would  seem  that  the  very  bonds 

and  mortgage  which  put  the  purchasers  upon  inquiry  lulled  and 
satisfied  inquiry.  They  had  the  right  to  presume  that  the  gov- 
ernor had  not  violated  his  duly;  that,  before  he  indorsed  the 
bonds,  1m;  had  on  file  the  Oath  of    the  president  ami  chief   engineer 

of  the  railroad  company  that  a  sufficient  number  of  miles  ot  rail- 
road   had    been    completed    to  authorize  the  indorsement.       lh-sides 

this,  they  had  the  Btettenient  of  th^  presidenl  and  treasurer  of  the 
railroad  company  on  the  face  of  the  bond,  and  of  the  trustees  for 

"  Stanton  v.  Alabama  &  Chattanooga  K.  R.  Co.  2  Woods,  523,  528,  per   Woodi, 
Circui    -1  ■■ 

L95 


§  215.]  MORTGAGE    BONDS   OF    CORPORATIONS. 

all  the  bondholders  upon  the  back  of  the  bond,  that  the  bonds 

were  secured  by  the  mortgage 

"  But  suppose  the  purchaser  of  bonds  had  ascertained  the  length 
of  the  road  for  himself  by  actual  measurement,  how  would  that 
help  him  to  know  whether  his  bonds  were  outside  or  inside  the 
terms  of  the  mortgage  ?  The  bonds  all  bear  the  same  date,  and 
fall  due  on  the  same  day.  Bond  number  one  has,  therefore,  no 
advantage  over  any  other  bond,  and  no  presumptions  are  to  be 
indulged  in  its  favor.  There  is  no  presumption  of  law  that  it  was 
issued  first  or  sold  first.  On  the  contrary,  the  presumption  is 
that  all  were  sold  at  the  same  time.  Practically,  we  know  that 
where  a  large  number  of  bonds  are  put  upon  the  market,  the  high- 
numbered  bonds  are  just  as  likely  to  be  sold  first  as  the  low-num- 
bered bonds.  So  that  if  the  purchaser  should,  before  purchasing, 
ascertain  for  himself  the  precise  length  of  the  road,  he  would  have 
no  means  of  ascertaining  whether  his  bonds  were  over-issue  bonds 
or  not.  The  holders  of  the  five  hundred  bonds  highest  in  number 
would  have  precisely  the  same  ground  to  say  that  the  first  five 
hundred  are  over-issues,  as  the  holders  of  the  first  five  hundred 
have  to  say  this  of  the  last  five  hundred.  I  conclude,  therefore, 
that  while  it  is  true  that  the  mortgage  limits  the  number  of  bonds 
to  be  secured  thereby,  and  the  holder  of  bonds  might  be  required 
to  take  notice  of  that  limitation,  there  was  nothing  to  put  him 
upon  notice  that  the  limit  thus  fixed  had  been  exceeded  ;  on  the 
contrary,  that  all  the  presumptions  and  all  the  evidence  was  that 
it  had  not ;  nor,  if  he  had  ascertained  that  the  limit  had  been 
exceeded,  was  he  bound  to  conclude  from  the  fact  that  his  bonds 
bore  the  high  numbers,  that  they  were  the  over-issue  bonds  rather 
than  others." 

215.  All  the  bonds  secured  are  presumed  to  have  been  is- 
sued at  the  same  time.  —  To  the  claim  made  in  the  case  last  con- 
sidered,1 that  the  mortgage  was  executed  to  secure  sixteen  bonds 
of  81,000  each  to  the  mile,  and  no  more,  that  no  larger  number  of 
bonds  could  be  secured  by  it  than  its  terms  authorized,  and  that 
when  the  company  had  issued  bonds  to  this  extent  it  had  no  power 
to  issue  a  greater  number  to  be  secured  by  that  mortgage,  substan- 
tially the  same  reply  is  made :  there  is  no  way  of  ascertaining 
which  are  the  bonds  over-issued  and  not  secured.  The  law  pre- 
1  Stanton  v.  Alabama  &  Chattanooga  R.  R.  Co.  supra. 

1(J6 


INCOMPLETE   AND    ALTERED    BONDS.  [§  216. 

sumes  they  were  all  issued  at  the  same  time,  and  the  purchaser 
has  the  right  to  act  on  that  presumption.  The  numbering  is 
merely  a  matter  of  convenience  in  their  registration  and  identifi- 
cation. "  The  case  is  this,"  says  the  Circuit  Judge,  Mr.  Woods. 
"  A  mortgage  is  made  to  trustees  to  secure  a  given  number  of 
bonds,  and,  as  a  matter  of  security  to  the  bondholders,  the  trus- 
tees are  required  to  place  their  certificate  upon  the  bond  to  the 
effect  that  it  is  described  in  and  secured  by  the  mortgage.  The 
common  trustees  of  all  the  bondholders  are  unfaithful  and  certify 
to  a  larger  number  of  bonds  than  were  intended  to  be  secured  by 
the  mortgage.  The  result  is,  that  all  must  suffer  from  the  unfaith- 
fulness of  the  trustees.  But  no  part  of  the  bondholders  can  say 
that  the  loss  shall  fall  exclusively  on  others.  It  is  a  case  for  the 
application  of  the  rule  that  equality  is  equity.  A  second  mort- 
gage bondholder  would  have  the  right  to  insist  that  the  first 
mortgage  should  only  secure  bonds  to  the  extent  of  $16,000  per 
mile.  But  no  first  mortgage  bondholder  has  the  right  to  say  that 
he  shall  be  paid  in  full  to  the  exclusion  of  others  whose  bonds  pur- 
port to  be  secured  b}r  the  same  mortgage,  and  whose  equities  are 
equal  to  his."  Even  if  there  were  a  second  mortgage  upon  the 
property,  in  case  the  foreclosure  sale  did  not  produce  a  sum  more 
than  sufficient  to  pay  the  amount  actually  secured  by  the  mort- 
.  no  second  mortgage  bondholder  is  injured  by  allowing  the 
over-issue  to  share  in  the  proceeds,  and  no  first  mortgage  bond- 
holder can  exclude  any  other  from  sharing  in  the  proceeds.  In 
case  the  proceeds  of  the  foreclosure  sale  had  exceeded  the  amount 
secured  by  the  mortgage,  and  there  were  no  subsequent  incum- 
brance, all  the  bonds,  being  valid  debts  of  the  company,  would  be 
paid  in  full,  or  pro  rata  so  far  as  the  proceeds  would  go;  but  if 
there  were  a  second  mortgage,  the  amount  for  which  the  first 
mortgage  was  a  security  by  its  terms  would  be  distributed  pro 
rata  among  all  tin;  bondholders. 

216.  The  alteration  of  the  number  of  a  negotiable  bond  not 
required  by  law  to  be  numbered,  inasmuch  as  it  does  nut  change 
the  tenor  of  the  bond,  is  immaterial;  and  although  made  with 
fraudulent  intent,  does  not  avoid  il  against  a  holder  who  takes  it 
afterwards  in  good  faith,  for  value,  without  notice  of  the  altera- 
tion,   Or    reason    tO    SUSpect    it.1       .Marks    of    SUCh    alteration,    when 

1  Commonwealth  v.   Emigrant  Industrial  Savings  Bank,  98  Mass.  12;  BirdsaU  r. 

L97 


§  217.]  MORTGAGE    BONDS   OF   CORPORATIONS. 

slight  only,  will  not  discredit  the  bond  in  the  market,  or  deprive 
the  holder  of  the  protection  of  a  bond  fide  holder.1    A  purchaser  of 
such  bonds  in  open  market  is  not  bound  to  make  a  close  and  criti- 
cal examination  of  it  to  escape  the  imputation  of  bad  faith  in  the 
purchase.     Even  his  knowledge  of  suspicious  circumstances  is  im- 
material, unless  amounting  to  proof  of  want  of  good  faith.2    "  The 
number  of  the  bond,"  say  the  New  Jersey  Court  of  Errors  and  Ap- 
peals, "  is  put  upon  it  as  a  mark  denoting,  for  the  convenience  and 
protection  of  the  maker,  that  it  is  one  of  a  series ;  but  such  mark 
does  not  enter  into  or  in  anywise  affect  the  agreement  embodied 
in  it ;   the  purchaser  has  nothing  to  do  with  it  and  need  give  it  no 
heed.     To  lay  down  the  broad  doctrine  that  an  alteration  in  such 
an  incidental  and  unnecessary  characteristic  as  this,  by  a  person 
possessed  of  no  legal  title  to  the  instrument,  will  have  the  effect  of 
annulling  such  an  instrument  in  the  hands  of  a  bond  fide  holder 
who  has  purchased  and  paid  for  it  in  the  ordinary  course  of  trade,  • 
would  be  to  imperil  all  persons  dealing  in  this  species  of  property. 
It  is  very  clear  that  the  true  principle  should  be,  that  the  holder 
of  a  negotiable  instrument  should  bear  no  risk  arising  from  ante- 
cedent alterations  of  it,  except  with  respect  to  such  as  have  been 
made  by  a  prior  legal  holder;   and  against  the  existence  of  any 
such  imperfections  in  his  title  he  has  a  sufficient  guaranty  in  that 
common  prudence  that,  for  the  most  part,  deters  men  from  doing 
an  act  destructive  of  their  own  rights  ;  whereas  if  he  is  to  be  held 
answerable  for  the  acts  of  persons  having  no  legal  interest  in  the 
instrument,  no  safeguard  whatever  is  provided  in  the  nature  of 
the  transaction."  3 

IV.  Remedies  upon   Corporate  Bonds. 

217.  In  an  action  upon  a  bond  issued  under  the  provisions  of 
a  railroad  act  authorizing  a  company  to  borrow  money  and  issue 
bonds  and  mortgages  for  the  purpose  of  completing,  furnishing, 
or  operating  its  road,4  it  would  seem  that  the  plaintiff  ought  prop- 
erly to  allege  that  the  money  was  borrowed  for  the  purpose  pro- 
vided for,  and  that  it  was  necessary  for  that  purpose.5 

Russell,  29  N.  Y.  220 ;  City  of  Elizabeth  3  City   of  Elizabeth  v.  Force,  29  N.  J. 

v.  Force,  29  N.  J.  Eq.  587.  Eq.    587. 

1  Birdsall  v.  Eussell,  supra.  i  2    R.  S.  N.  Y.  1875,  p.  532. 

2  Spooner  v.  Holmes,  102  Mass.  503.  6  Miller  v.  N.   Y.  &  Erie    R.  R-  Co.  8 

Abb.  (N.  Y.)  Pr.  431  ;  18  How.  Pr.  374. 

198 


REMEDIES  UPON  CORPORATE  BONDS.    [§§  218,  219. 

An  action  may  be  maintained  upon  a  bond  payable  at  a  fixed 
time  and  place  without  allegation  or  proof  of  presentation  at  the 
time  and  place  mentioned.1  This  is  the  rule  applicable  to  a  suit 
against  the  maker  of  a  note,  or  the  acceptor  of  a  bill  of  exchange. 
But  if  the  maker  or  acceptor  was  at  the  place  at  the  time  desig- 
nated, and  was  ready  and  offered  to  pay  the  money,  it  is  matter 
of  defence  to  be  pleaded  and  proved  on  his  part.2 

No  demand  of  payment  at  the  place  where  the  bonds  are  made 
payable  is  necessary  when  the  corporation  is  insolvent  and  has  no 
funds  at  the  place  designated.  The  law  does  not  exact  the  per- 
formance of  such  a  fruitless  act.3 

Where  bonds  are  made  payable  at  the  company's  office  in  a  par- 
ticular place,  and  at  the  maturity  of  the  bonds  the  company  has  no 
office  at  that  place,  a  demand  of  payment  elsewhere  is  sufficient.4 

218.  Bonds  illegally  issued  cannot  be  actively  enforced  either 
in  a  court  of  law  or  a  Court  of  Equity.  Yet  if  a  corporation 
which  has  issued  such  bonds  comes  into  a  Court  of  Equity  seek- 
ing to  set  them  aside,  equitable  terms  may  be  imposed  upon  it ; 
and  if  the  corporation  has  had  the  benefit  of  the  sums  of  money 
for  which  these  invalid  bonds  had  been  given,  it  may  be  charged 
as  a  debtor  to  that  extent.5  But  as  already  noticed,  corporations 
ma\  be  estopped  by  their  acts  from  claiming  the  invalidity  of 
their  bonds  ;  and  if  the  bonds  be  negotiable,  purchasers  for  value 
may  not  be  affected  by  their  irregular  or  illegal  issue.6 

219.  Relief  may  be  had  in  equity  for  the  loss  or  destruc- 
tion of  negotiable  bonds  and  coupons.  The,  jurisdiction  of  the 
court  for  this  purpose,  will  be  exercised  and  relief  granted  by 
ordering  the  issue  of  other  bonds  in  place  of  those  lost,  when- 
ever I  he  loss  or  destruction  of  the  instruments  has  happened 
without  the  negligence;  or  fault  of  the  parly  applying,  provided 
such   rdicf  can  be    given  without  derogating   from   any   positive! 

1   Langston  v.  So.  Carolina  R.  R.  Co.  2  6  Cork  &  Youghal  Ry.  Co.  in  re,  L.  R.  4 

8.  ('.  248;  First  Nat.  Hank  of  St.  Paul  v.  Ch.  748;  Durham  County,  &c,  Building 

County  Coiin                  of  Scott  County,  Sec  in  re,  L.  R.  12  Eq.  .r»iil  ;  Grand  Junc- 

11  Minn.  77.  tion   liy.  Co.  v.  Bickford,  23  Grant's  Ch. 

-  Wallace  v.  M'Connell,  13  Pet  136.  (Ontario)  302. 

■■  Shaw  v.  Bill,  95  II.  S.   10.  "  Sec  §  207. 

4  Alexander  v.  Atlantic,  Tenn.  &  Ohio 
R.  i;.  Co.  67  x.  C.  L9S 

L99 


§  220.]  MORTGAGE   BONDS    OF   CORPORATIONS. 

agreement,  or  violating  any  equal  or  superior  equit}^  in  other  par- 
ties. Such  relief  was  granted  in  the  case  of  bonds  stolen  at  the 
time  of  the  evacuation  of  Petersburg  by  the  Confederate  forces, 
the  bonds  having  been  hidden  in  the  ground  for  safety  ; J  and  in 
like  manner  in  the  case  of  bonds  stolen  from  the  vault  of  a  bank- 
ing company.2  It  has  been  insisted  sometimes  that  there  is  no 
relief  in  equity  when  the  loss  has  occurred  through  theft.  But 
equity  makes  no  distinction  in  this  respect.3 

In  case  the  lost  bonds  have  considerable  time  yet  to  run  before 
maturity,  it  is  believed  to  be  within  the  power  of  a  Court  of  Equity 
to  grant  relief  by  decreeing  a  reissue  of  the  bonds,  upon  the  execu- 
tion of  a  good  and  sufficient  bond  of  indemnity  to  the  company 
against  the  claims  of  bond  fide  holders  of  the  bonds  alleged  to 
be  lost.  To  enjoin  the  company  from  paying  the  bonds  to  any 
bond  fide  holder  is  useless  and  erroneous.4 

One  who  has  in  good  faith  sold  bonds  of  a  private  or  munic- 
ipal corporation  which  are  for  any  reason  void  is  not  liable  to 
the  purchaser  for  the  price  paid  for  them,  unless  he  has  warranted 
their  validity.5  He  is  liable  ex  delicto  for  bad  faith  ;  and  ex  con- 
tractu there  is  an  implied  warranty  on  his  part  that  they  belong 
to  him,  and  that  they  are  not  forgeries.  Where  there  is  no  ex- 
press stipulation,  there  is  no  liability  bej^ond  this.  If  the  buyer 
desires  special  protection,  he  must  take  a  guaranty.6 

220.  A  right  of  conversion  into  stock  can  be  enforced 
only  by  the  holder  of  the  bond.  — When  bonds  of  a  railway 
company,  payable  to  the  holder  and  assignable  by  delivery,  are 
made  convertible  into  the  capital  stock  of  the  company  at  the 
pleasure  of  the  holder,  at  par,  the  right  of  conversion  goes  with 
the  bonds  and  is  inseparable  from  them.  The  right  of  conversion 
is  available  to  the  holder  only  so  long  as  he  continues  the  holder, 
when  it  passes  by  the  transfer  of  the  bonds  to  the  new  holders. 
Upon  the  refusal  of  the  company  to  make  the  conversion  upon 
the  demand  of  a  holder,  he  has  several  courses  open  to  him  at 
his  election.     He  may  waive  the  right  thus  denied  him,  continue 

1  Chesapeake  &  Ohio  Canal  Co.  v.  Blair,         4  New  Orleans,  Jackson  &  Great  North- 
45  Md.  102.     See  §  389.  ern  R.  R.  Co.  v.  Miss.  College,  47  Miss.  560. 

2  Force  v.  City  of  Elizabeth,  27  N.  J.         5  Otis  v.  Cnllum,  92  D.  S.  447. 

Eq.  408.  6  Per   Swayne,  J.,   in  Otis  v.  Cullum, 

8  Force  v.  Citv  of  Elizabeth,  supra.  supra. 

200 


REMEDIES  UPON  CORPORATE  BONDS.         [§  221. 

to  draw  his  interest  as  it  accrues,  and  demand  the  principal  at 
maturity  ;  or  may  at  any  time  renew  his  demand  ;  or  he  may 
divest  himself  of  all  interest  in  the  subject  matter,  and  invest 
another  party  with  all  his  rights,  including  the  right  of  election 
as  to  the  mode  of  performing  the  contract,  by  a  sale  and  trans- 
fer of  the  bond  ;  or  he  may  stand  upon  and  abide  by  the  election 
and  demand  already  made,  and  on  his  right  to  convert  the  bond 
into  capital  stock  ;  and  may  by  action  recover,  by  way  of  dam- 
ages for  the  breach  of  contract,  the  full  market  value  of  the  stock 
wrongfully  withheld  from  him.  Such  recovery  would  be  a  bar 
to  any  further  suit  on  the  bond,  and  the  payment  of  the  judg- 
ment would  place  the  company  in  the  legal  position  they  would 
be  in  had  they  issued  the  stock  on  demand.1  But  in  an  action 
for  the  refusal  to  convert  the  bonds  into  stock,  it  is  clear  that  the 
plaintiff  must  allege  not  only  his  ownership  at  the  time  of  the 
demand  for  conversion,  and  that  he  then  offered  to  surrender  the 
bonds  for  cancellation,  but  also  that  he  is  still  the  owner  and 
holder  of  such  bonds,  and  now  brings  them  into  court  for  cancel- 
lation, upon  his  recovery  of  damages  for  breach  of  the  stipula- 
tion ;  and  an  action  without  such  allegations  is  fatally  defective. 
An  option  given  in  a  railroad  bond  to  convert  it  into  stock 
within  a  specified  time  must  be  exercised  within  that  time  or 
it  is  forever  gone,  and  can  only  be  renewed,  or  the  right  to 
exercise  it  revived,  by  a  new  contract.  An  agreement  for  the 
extension  of  the  time  of  payment  of  the  bond  cannot  have  that 
effect.2 

221.  Bonds  issued  by  a  railroad  company  in  the  hands  of 
a  non-resident  of  a  state  are  not  subject  to  taxation  by  that 
state.  The  bonds  are  property  in  the  hands  of  the  holders, 
and  when  held  by  non-residents  they  are  property  beyond  the  ju- 
risdiction of  the  "state.     A  statute  requiring  the  treasurer  of  the 

i   Per  Scott,  C.J.,  in  Denny  v.  Clcve-  par,  upon  the  surrender  thereof,  with  the 

land  &  Pitt  burg  Et.  R.  Co.  28  Ohio  St.  unpaid  interest  coupons,  to  the  secretary 

ins.     The  convertible  clause  in  this  case  of  the  company.     Bj  order  of  the  direc- 

was  indorsed  upon  the  bonds, over  thesig-  tors."    Dennj  W.Cleveland  &  Pittsburg  11. 

nature  of  the  president  of  the  company,in  B.  Co.  supra. 

the  following  terms:  "The  within  bond,        -  Muhlenberg  v.  Phila.  &  Readini   B   R 

convertible  into  the  capital  Btock  of  tlio  Co.  47  Pa.  St.  16. 
company  at  the  pleasure  of  the  bolder,  at 

201 


§  221.]        MORTGAGE  BONDS  OF  CORPORATIONS. 

company  to  retain  a  percentage  of  the  interest  due  to  the  non- 
resident bondholders  is  not,  therefore,  a  legitimate  exercise  of  the 
taxing  power.  It  is  a  law  which  interferes  between  the  company 
and  the  bondholder,  and  under  the  pretence  of  levying  a  tax  com- 
mands the  company  to  withhold  a  portion  of  the  stipulated  in- 
terest and  pay  it  over  to  the  state.  It  is  a  law  which  impairs 
the  obligation  of  the  contract  between  the  parties.  The  fact  that 
the  bonds  are  secured  by  a  mortgage  of  property  situated  in  the 
state  does  not  confer  any  right  to  tax  such  bonds.  The  mort- 
gage is  a  mere  lien,  and  though  in  the  form  of  a  conveyance  con- 
fers no  absolute  ownership.  The  mortgagee  has  a  chattel  interest 
which  follows  the  person  of  the  owner.1 

The  constitutional  provision  against  impairing  the  obligations 
of  contracts  is  a  limitation  upon  the  taxing  power  of  a  state  as 
well  as  upon  other  legislation  ;  and  in  fact  this  provision  is  more 
frequently  violated  in  exercise  of  the  taxing  power  than  in  any 
other  mode.  "  No  state,"  says  Mr.  Justice  Strong,2  "  by  virtue 
of  its  taxing  power,  can  say  to  a  debtor,  ;  You  need  not  pay  to 
your  creditor  all  of  what  you  have  promised  to  him.  You  may 
satisfy  your  duty  to  him  by  retaining  a  part  for  yourself,  or  for 
some  municipality,  or  for  the  state  treasury.'  Much  less  can  a 
city  say,  '  We  will  tax  our  debt  to  you,  and  in  virtue  of  the  tax 
withhold  a  part  for  our  own  use.' '  No  municipality  of  a  state 
can,  by  its  own  ordinances,  under  the  guise  of  taxation,  relieve 
itself  from  performing  to  the  letter  all  that  it  has  expressly  prom- 
ised to  its  creditors.3 

A  state  has  no  power  to  tax  the  bonds  of  a  railroad  corporation 
whose  road  lies  partially  in  two  or  more  states,  when  the  bonds 
are  binding  upon  every  part  of  the  road.4  If  one  state  can  tax 
the  bonds  the  other  can  also  tax  them  ;  and  thus  there  would  be 
a  double  taxation  of  the  same  property  ;  or  if  the  road  extends 
through  five  or  six  states,  there  might  be  a  taxation  of  the  same 
property  five  or  six  times  over.  A  state  cannot  properly  impose 
a  tax  upon  property  and  interests  lying  beyond  her  jurisdiction. 

1  Railroad  Co.  v.  Pennsylvania :  Case  of  peake  &  Ohio  R.  R.  Co.  27  Gratt.  (Va.) 

the  State  Tax  of  Foreign  held  Bonds,  15  344.    Contra,   see   Maltby  v.   Reading   & 

Wall.  300;  Railroad    Co.  v.   Jackson,    7  Columbia  R.  R.  Co.  52  Pa.  St.  140. 

Wall.  262  ;  Davenport  v.  Miss.  &  Mo.  R.  2  Murray  v.  Charleston,  96  U.  S.  432. 

R.  Co.  12  Iowa,  539;  People  v.  Eastman,  3  Murray  v.  Charleston,  supra. 

25   Cal.  603  ;    Commonwealth  v.    Chesa-  4  Railroad  Co.  v.  Jackson,  7  Wall.  262. 
202 


REMEDIES    UPON    CORPORATE    BONDS.  [§  221. 

Railroad  charters  sometimes  contain  an  exemption  from  taxa- 
tion either  total  or  limited  ;  and  in  such  case  the  exemption  is  ir- 
repealable  and  inviolable.1 

1  Mobile  &  Ohio  R,  R.  Co.  v.  Mosely,  Hannibal  &  St.  Jo.  R.  R.  Co.  60  Mo. 
62   Miss.  127.     See  Livingston  Countv  v.     516. 

203 


CHAPTER  VII. 

MUNICIPAL    BONDS    IN   AID     OF    RAILROAD   AND    OTHER    CORPO- 
RATIONS. 

I.  Power  of  municipalities  to  issue  negoti-  [  IV.  Ratification  of   bonds  irregularly   is- 


able  bonds  in  aid  of  private  corporations, 
222-230. 

II.  Constitutional  and  statutory  provi- 
sions respecting  municipal  aid  to  corpo- 
rations, 231-266. 

III.  Conditions     precedent    to    granting 


sued,  and  waiver  of  conditions,  278-282. 

V.  Negotiability   of  municipal   securities, 
283-286. 

VI.  Rights  of  bonajide  holders  of  negoti- 
ble  bonds  of  municipalities,  287-299. 

VII.  Enforcement    of    municipal   bonds, 


municipal  aid,  267-277.  I       300-305. 

I.    Power  of  Municipalities  to  issue  Negotiable  Bonds  in  aid  of 
Private   Corporations. 

222.  General  statement.  —  Municipal  corporations  are  created 
solely  for  the  purposes  of  local  government.  They  are  the  creat- 
ures of  the  state,  which  confers  upon  them  a  portion  of  its  gov- 
ernmental power,  to  be  exercised  for  the  specific  purpose  of  their 
existence.  The  legislature  invests  them  with  only  such  powers  as 
it  deems  essential  to  this  end,  and  the  powers  conferred  are  at  all 
times  subject  to  its  control.  They  have  no  powers  of  their  own, 
except  such  as  are  incidental  to  their  very  existence.1  The  pur- 
poses for  which  municipal  corporations  are  formed  being  public 
and  governmental  for  the  public  benefit  of  the  people  within  their 
limits,  while  those  for  which  private  corporations  exist  are  the 
carrying  on  of  private  business  for  the  private  gain  of  their  mem- 
bers, a  fundamental  and  wide  difference  arises  between  the  powers 
of  these  two  classes  of  corporations.  Thus  it  has  been  observed  2 
that  private  corporations  have  the  power,  as  incidental  to  their 
existence,  to  borrow  money  and  to  execute  negotiable  or  other 
securities  at  their  pleasure.     But  municipal  corporations  have  no 

1  United  States  v.  Railroad  Co.  17  Wall.  330 ;  Carter  v.  City  of  Dubuque,  35  Iowa, 

322;  Mayor  v.  Ray,  19  Wall.  468,  475;  416. 

Thomson  v.  Lee   County,    3  Wall.    327,  2  See  §  128. 
204 


POWER   OF   MUNICIPALITIES   TO   ISSUE   BONDS.  [§  223. 

such  powers.1  A  similar  distinction,  arising  from  their  diverse 
purposes,  exists  between  the  conferred  powers  of  municipal  and 
private  corporations  ;  those  of  the  latter  assimilating  closely  to 
the  powers  of  natural  persons,  while  those  of  the  former  are  pub- 
lic, and  only  such  as  will  enable  them  to  fulfil  their  public  func- 
tions. The  powers  conferred  upon  corporations  must  be  appro- 
priate to  the  purposes  for  which  they  are  created  ;  and,  there- 
fore, the  legislature  itself  is  limited  in  conferring  powers  upon 
municipal  corporations  to  such  as  may  be  exercised  for  public  pur- 
poses. 

223.  Municipal  corporations  cannot  incur  debts  and  issue 
their  securities  for  purposes  not  "within  the  proper  scope  of 
such  corporations,  even  though  they  have  legislative  sanction  for 
such  transactions.  It  is  a  fundamental  principle  that  tin'  power 
to  levy  taxes  can  only  be  used  by  municipal  corporations  for  public 
purposes  :  and  it  is  equally  fundamental  that  these  public  purposes 
must  be  such  as  are  contemplated  in  the  creation  and  existence 
of  such  corporations.  As  to  what  are  public  purposes  for  which 
municipal  corporations  may  be  empowered  to  raise  money  by  tax- 
ation much  diversity  of  opinion  exists,  and  it  is  not  possible  to 
reconcile  all  the  decisions.  In  general,  it  may  be  said  that  "the 
object,  to  be  a  public  use,  must  either  be:  (1.)  something  which 
ipso  facto,  by  its  mere  existence  and  of  necessity,  produces  souk; 
great  common  good  to  all  the  inhabitants  of  a  particular  district, 
such  as  sanitary  measures  for  draining,  water-supply,  and  the  like  ; 
or  (2.)  it  must  be  something  in  which  the  public  at  large  —  that 
is,  every  individual,  if  he  pleases  —  has  a  legal  interest  and  right, 
such  as  a  highway,  railroad,  and  the  like  ;  or  (3.)  it  must  be  some- 
thing directly  governmental,  such  as  a  fort,  a  statediouse,  and  the 
like."2  Accordingly  the  laying  out  and  grading  of  streets/'  the 
locating  and  building  of  a  school  or  university,4  the  con  truction 
of  town  halls,5  of  markets,''  of  water-works,7  and  of  gas  works,8 

i  Thomson  v.  Lee  County,  supra ;  Mil-        4   Hensley  Township  v.   People,  84    111. 

ler  v.  Ray,  supra.  54  t. 

"  Mr.  Pomeroy's   argument   in   Bloom-        6  Greeley  v.  People,  60  III.  lit. 
field,  &c.  Gas  Light  Co.  v.  Richardson,  63        «  State  v.  City  of  Madi.-on,  7  fl 
Barb.   (N.    V.)   437;  People  v.  Common        7  Hale  v.  Houghton,  8  Mich.  458;  Sala 

Conncil  of  Detroit,  28  Mich.  228 ;  15  Am.  y.  City    of    New  Orleans,  2    Wood     I 

H  202.  Rome  o.  Cabot,  28  Ga,  50. 

s  Roeeratf.  Burlington,  8  Wall.  054.  '  Citj  of   Auroraw.  West,  9  End.  74. 

205 


§  224.]  MUNICIPAL   BONDS   IN    AID    OF   RAILROADS. 

the  laying  out  of  cemeteries  and  public  parks,1  and  the  providing 
of  fire-engines,2  have  been  held  to  be  proper  objects  of  municipal 
care,  for  which  the  legislature  may  authorize  a  municipality  to 
borrow  money  and  issue  negotiable  securities. 

But  a  statute  authorizing  the  city  of  Boston  to  raise  money  by 
the  issue  of  bonds  for  the  purpose  of  lending  it  to  owners  of  prop- 
erty destroyed  by  the  great  fire  was  declared  unconstitutional.3 
In  like  manner  a  statute  of  the  State  of  Kansas,  whose  object  was 
to  provide  the  destitute  with  provisions,  and  with  grain  for  seed, 
was  held  to  be  unconstitutional.4  A  statute  authorizing  towns 
to  loan  their  credit  to  such  persons  as  will  engage  in  manufactur- 
ing for  their  private  emolument  in  such  towns  is  unconstitutional.5 
The  legislature  cannot  take  the  property  of  one  man,  or  the  prop- 
erty of  all  tax-payers  of  a  town,  and  hand  it  over,  without  con- 
sideration and  without  pretence  of  any  public  obligation  or  duty, 
to  another,  to  be  used  by  him  in  buying  a  farm,  or  building  a 
house,  or  setting  himself  up  in  business.  It  is  too  clear  for  dis- 
cussion that  this  would  be  a  taking  of  private  property  for  a  pri- 
vate use,  and  would  be  beyond  the  limits  of  legislative  power.0 

224.  In  illustration  of  these  principles  which  determine  the 
limits  of  the  power  of  municipal  corporations  to  incur  indebted- 
ness there  are  numerous  decisions,  to  a  few  of  which  only  is  it 
practicable  to  refer  in  connection  with  the  present  subject.  It  is 
premised  that  while  the  general  rule,  that  the  legitimate  object  of 
raising  money  by  taxation  is  for  public  purposes,  and  the  proper 
needs  of  government,  general  and  local,  state  and  municipal,  is 
not  anywhere  disputed,  yet  when  the  inquiry  is  made  in  any  case, 
what  is  a  public  purpose,  the  answer  is  not  always  ready,  nor 
easily  to  be  found.  In  general  it  may  be  said  that  no  pinched  or 
meagre  sense  may  be  put  upon  the  words,  and  that  if  the  purpose 
designed  by  the  legislature  lies  so  near  the  border  line  as  that  it 
may  be  doubtful  on  which  side  of  the  line  such  purpose  is  domi- 

1  County  Court  of  St.  Louis  County  v.  5  Allen  v.  Inhabitants  of  Jay,  60  Me. 
Griswold,  58  Mo.  175.  124  ;  Commercial  Bank  v.  City  of  Iola,  2 

2  Robinson  v.  City  of  St.  Louis,  28  Mo.  Dill.  353  ;  National  Bank  of  Cleveland  v. 
488  ;  Mills  v.  Gleason,  11  Wis.  470.  City  of  Iola,  U.  S.  Circuit  Court,  9  Kans. 

3  Lowell  v.  City  of  Boston,  111  Mass.  689;  Ohio  Valley  Iron  Works  v.  Town  of 
454.  Moundsville,  1 1  W.  Va.  1 . 

4  State  v.  Osawkee  Township,  14  Kans.  6  Perry  v.  Keene,  56  N.  H.  514. 
418. 

206 


POWER    OF    MUNICIPALITIES   TO   ISSUE.  [§  224. 

ciled,  the  courts  may  not  set  their  judgment  against  that  of  the 
law  makers.1 

A  statute  which  authorizes  the  issuing  of  bonds,  to  be  paid  by 
taxation,  to  aid  in  establishing  or  carrying  on  ordinary  manufact- 
uring enterprise  is  void,  because  the  purpose  is  not  a  public  one, 
although  the  enterprise  might,  in  a  collateral  way,  benefit  the  local 
public.2  "  I  think  it  would  not  be  claimed,"  said  Grover,  J.,  in  a 
case  before  the  Court  of  Appeals  of  New  York,3  "  that  a  town 
could  be  compelled  to  become  a  stockholder  in  a  banking  or 
manufacturing  corporation,  although  it  appeared  that  tin;  partic- 
ular corporation  would  largely  promote  the  public  interest  where 
the  business  was  conducted.  Such  legislation  could  only  be  sus- 
tained by  holding  the  power  of  the  legislature  supreme  over  mu- 
nicipal corporations  for  private  as  well  as  public  purposes.  Upon 
principle  and  authority,  I  think  that  it  is  not  as  to  the  former, 
although  it  is  as  to  the  latter."  Moreover,  the  legislature  may  not 
empower  a  majority  to  compel  a  minority  to  enter  into  a  private 
business,  whether  the  form  of  effecting  the  end  be  by  a  direct 
statute  or  through  the  operation  of  taxation.4 

The  principle  is  forcibly  stated  in  a  leading  case  before  the  Su- 
preme Court  of  Pennsylvania  by  Black,  C.  J.:  "The  legislature 
has  no  constitutional  right  to  create  a  public  debt,  or  to  lay  a  tax, 
or  to  authorize  any  municipal  corporation  to  do  it,  in  order  to  raise 
funds  for  a  mere  private  purpose.  No  such  authority  passed  to 
the  assembly  by  the  general  grant  of  legislative  power.  This 
would  not  be  legislation.  Taxation  is  a  mode  of  raising  revenue 
for  public  purposes.  When  it  is  prostituted  to  objects  in  no  way 
connected  with  the  public  interests  or  welfare,  it  ceases  to  be  tax- 
ation, and  becomes  plunder.  Transferring  money  from  the  own- 
ers of  it  into  the  possession  of  those  who  have  no  title  to  it,  though 

i  Wdsmcr  v.  Village   of  Douglas,  C4  v.  Village  of  Douglas,  13  Am.  R.  480;  S. 

N.Y.  91,  99, substantially  the  language  oi  C.  I  Hun  (N.Y.),201  ;  S.  C.64  \.  Y.91, 

r,  J.  which  see  for  a  full  discussion  of  the  sub- 

2  Jarrott  v.  City  of  Moberly   (U.  S.  C.  ject;    Curtis  r.    Whipple,   24    Wis.  350 j 

C.  W.  D. Mo.  April  T.  1878),  5    Reporter,  Whiting  v.  Sheboygan  &    Fond  l>u  Lac 

683;    Loan    Association    v.   Topeka,   20  R.  JR.  Co.  25  Wis.  L67;  National  Bank  of 

Wall.  655;  Commercial  National  Bank  of  Cleveland  v.   [ola    (U.  S.  C.  C),  9  Kana. 

land  r.  Lola,  2  Di  L   35  •  ;  Citizens'  690. 

A  Bociation  of  Cleveland  v.  To-  ;;  People  v.  Batchellor,  58   X.    V.    128, 

peka,  3    Dill.  376 ;  Allen   v.  Jay,  60    Me.  L43. 

124;  Western  Saving  Fund  Soc.  of  Phila.  *  Weismerw.  Village  of  Douglas,  53  N. 

v.  City  of  Phila.  31  Pa.  Si   L85;  Weismer  X".  128,  per  Folger,  J. 

207 


§  225.]  MUNICIPAL    BONDS   IN    AID    OF   RAILROADS. 

it  be  done  under  the  name  and  form  of  a  tax,  is  unconstitutional 
for  all  the  reasons  which  forbid  the  legislature  to  usurp  any  other 
power  not  granted  to  them."  1 

225.  In  several  states  there  are  statutes  authorizing  mu- 
nicipal aid  to  internal  improvements,  and  the  inquiry  often 
arises  what  improvements  may  be  promoted  under  this  authority. 
The  first  essential  characteristic  of  an  improvement  entitled  to  such 
aid  is,  that  its  purpose  shall  be  public.2  Railroads,  turnpikes, 
bridges,  ferries,  public  buildings,  the  reclaiming  of  swamps,  and 
the  like,  are  no  doubt  authorized  improvements.  A  bridge  or  a 
turnpike  which  is  a  public  thoroughfare  is  an  internal  improve- 
ment, although  tolls  are  charged  for  the  use  of  it.3  A  county  hav- 
ing, under  the  authority  of  such  a  statute,  voted  aid  for  the  con- 
struction of  a  bridge,  under  the  belief  that  it  had  the  right  to 
exact  tolls  for  its  use,  the  want  of  power  to  demand  tolls  does 
not  affect  the  validity  of  the  bonds  issued  therefor.  The  power 
to  aid  in  the  construction  of  the  bridge,  and  the  power  to  stip- 
ulate for  tolls  thereon,  are  two  distinct  things  ;  and  whether  the 
power  to  exact  tolls  exists  or  not  does  not  in  any  way  concern  the 
purchaser  of  the  bonds.4 

Under  a  statute  of  the  State  of  Nebraska  authorizing  any 
county  or  city  to  issue  bonds  to  aid  in  the  construction  of  any 
railroad  or  other  work  of  internal  improvement,  a  bridge  was 
held  to  be  an  internal  improvement  within  the  meaning  of  the 
act.5  The  fact  that  the  bridge,  in  aid  of  the  construction  of 
which  the  bonds  were  issued,  was  built  as  a  toll-bridge,  and 
was  used  as  such,  does  not  affect  their  validity.  All  bridges  in- 
tended and  used  as  thoroughfares  are  public  highways,  whether 
subject  to  toll  or  not.  Neither  does  the  fact  that  the  precinct 
or  the  county  commissioners  had  no  right,  without  legislative  au- 
thority, to  demand  tolls  for  passing  the  bridge  affect  the  valid- 

1  Sharpless  v.  Mayor,&c.of  Philadelphia,     improvements  of  highways  and   channels 
21  Pa.  St.  147,  168.   Quoted  and  approved     of  travel  and  commerce." 

in  Opinion  of  Judges,  58  Me.  590.  3  County  Commissioners   v.  Chandler, 

2  Mayor   of  Watumpka    v.  Newton,  23      Supreme  Court    of  the  U.  S.  5  Reporter, 
Ala.  660.    "  Where  internal  improvements     227  ;  96  U.  S.  205. 

under  state  authority  are  spoken  of,  it  is  4  County  Commissioners  v.   Chandler, 

universally  understood  that  works  within  supra. 

the  state  by  which  the  public  are  supposed  5  Union  Pacific  R.  R.  v.  Colfax  County, 

to  be  benefited  are  intended  ;  such  as  the  4  Neb.  450. 

208 


POWER   OF    MUNICIPALITIES   TO   ISSUE.  [§  226. 

ity  of  the  bonds.  The  bridge  was  an  internal  improvement, 
which  the  precinct  had  the  power  to  aid ;  and  whether  it  had  the 
power  to  collect  tolls  for  the  use  of  it  is  a  distinct  thing.1 

A  statute  of  the  State  of  Kansas  authorized  towns  and  coun- 
ties to  issue  bonds  "  for  the  purpose  of  building  bridges  or  to  aid 
in  the  construction  of  railroads,  water-power,  or  other  works  of 
internal  improvement."  2  A  previous  statute  declared  all  custom 
grist-mills  to  be  "  public  mills,"  and  regulated  their  management.3 
A  township  issued  bonds  which  purported  to  be  authorized  by  the 
act  first  named,  to  aid  in  the  construction  and  equipment  of  a 
steam  grist-mill  owned  by  an  individual.  The  Supreme  Court  of 
the  United  States  declared  the  bonds  authorized  and  valid,  being 
issued  in  aid  of  "  works  of  internal  improvement  "  within  the 
meaning  of  the  act.4 

Under  a  special  act  of  the  legislature  of  the  same  state  a 
township  was  authorized  to  issue  bonds  for  the  purpose  named  in 
a  vote  of  the  township,  which  was  to  aid  in  the  improvement  of 
a  water-power,  and  the  putting  in  of  a  flouring-mill.  The  de- 
cision 5  sustaining  the  validity  of  the  bonds  rested  upon  the  recital 
that  they  were  issued  "  for  the  purpose  of  aiding  internal  im- 
provements ;  "  but  Judge  Dillon  remarked  that  the  legislature  of 
the  state  authorized  in  favor  of  water-mills  the  exercise  of  the 
power  of  eminent  domain,  and  that  the  Supreme  Court  of  the 
state  had  declared  that  "no  instance  can  be  shown  where  the 
government  may  aid  a  thing  by  the  power  of  eminent  domain, 
where  it  cannot  also  aid  it  by  taxation."6 

226.  A  municipal  corporation  cannot  without  legislative 
authority  issue  bonds  in  aid  of  any  extraneous  object.  Every 
person  dealing  in  them  must  at  his  peril  take  notice  of  the  ex- 
istence and  terms  of  the  law  by  which  it  is  claimed  the  power  to 
issue  th<^  bonds  is  conferred.7     Therefore,  if   the  act  which  it  was 

1  County  Commissioners  v.  Chandler,  6  Leavenworth  County.  Mil Wt,  7  Kans 
96  TL  S.  205.    And  see   Commissioners  of     479,52.'). 

Dodge  County  v.  Chandler,  U.'S.  Supreme  'Thomson    v.   Lee    County,  S    Wall. 

Conn,  1878    5  Reporter,  227.  327;  Pendleton  County  v.  Amy,  13  Wall. 

2  Stat.  1872,  ch.  68,  p.  110.  297;  Kenicott  v.  Supervisors,  16  Wall. 
»  Stat.  1868,  ch.  65,  p.  57.'!.  452;  St.  Joseph  Township  v.  Rogers,  16 
«  Township  of  Burlington   v.  Beasley,     Wall.  644 ;  Town  of  Col a  v,  Ea 

94U.  8.  310.  U.  S.484;  Town   of  So.  Ottawa  i>.  Per 

•'<  Guernsey  v.  Burlington  Township,  4     kins,  mi  0.8.260;  Police  Jury  v.  Britton, 

Dill,  372.  15  Wall.  566;  Barnes  v.  Town  oi  Lacon, 

14  209 


§  226.]  MUNICIPAL    BONDS   IN   AID    OF   RAILROADS. 

supposed  authorized  the  issuing  of  the  bonds  was  not  actually 
passed  by  the  legislature,  although  it  was  published  among  the 
printed  statutes  of  the  state  as  a  law,  and  therefore  primd  facie 
valid,  the  municipal  corporation  which  has  issued  bonds  by  virtue 
of  the  act  is  not  estopped  to  deny  the  passage  of  it,  although  the 
bonds  are  held  by  a  purchaser  in  good  faith,  who  relied  upon  the 
published  statute  as  valid.1 

The  power  to  issue  railroad-aid  bonds  is  not  one  of  the  ordi- 
nary powers  of  a  municipality.  Express  authority  for  it  is  re- 
quired, and  thus  authority  must  be  exercised  in  conformity  with 
prescribed  forms.2  But,  while  nothing  is  taken  by  implication, 
the  statute  is  not  construed  with  the  strictness  of  the  rules  of 
criminal  law.  The  officers  of  the  county  have  no  authority  to 
waive  any  of  the  limitations  or  conditions  of  the  statute  author- 
izing the  aid,  or  of  the  subscription  itself  ;  yet,  if  there  be  a 
failure  on  the  part  of  the  railroad  company  to  comply  with  the 
conditions  in  some  minor  respect,  such  as  the  completion  of  a 
specified  number  of  miles  of  road  within  a  given  time,  and  the 
county  takes  no  objection,  but  pays  the  interest  upon  the  bonds 
for  a  series  of  years,  the  action  of  its  officers  is  thereby  ratified, 
and  the  county  prevented  from  recovering  the  bonds  or  their 
value  of  the  railroad  company.3 

Inasmuch  as  municipal  aid  may  be  given  to  railroad  companies, 
it  follows  that  such  aid  may  be  given  for  any  integral  or  essential 
part  of  a  railroad,  such  for  instance  as  the  building  of  machine 
shops  ; 4  or  the  construction  of  depots  and  side-tracks  of  an  ex- 

84  111.  461  ;  Town  of  Pana  v.  Lippincott,  47  Pa.  St.  189;  Fisk  v.  City  of  Kenosha, 

10   Chicago   Leg.  News,  205 ;    Delaware  26  Wis  23. 

County  v.  McClintock,  51  Ind.  325  ;  Clay  1  Town  of  South  Ottawa  v.  Perkins,  94 

W.Nicholas  County  Court,  4  Bush  (Ky.),  U.  S.  260. 

154;  Williamson   v.  City  of  Keokuk,  44  2  Blake  v.  Mayor,  &c.  of  Macon,  53  Ga. 

Iowa,  88;  Hawkins  v.  Carroll  County,  50  172;  Lewis  v.  Bourbon  County,  12  Kans. 

Miss.  735  ;  Sykes  v.  Mayor,  &c  of  Colum-  186 ;  Barnes  v.  Town  of  Lacon,  84  111.  461  ; 

bus,  5  Reporter,  501  ;  Ranlett  v.  Leaven-  Hopple  v.  Hippie,  Sup.  Ct.  Cora,  of  Ohio, 

worth,  U.  S.  C.  C,  referred  to  in  1  Dill.  1878,  7    Cent.  L.  J.  75  ;  M'Dermond  v. 

263  ;  Reineman  v.  Covington,  &c.  R.  R.  Co.  Kennedy,  Bright.  (Pa.)  332  ;  Pennsylvania 

7  Neb.  310;  New  Orleans,  Mobile  &  Chat-  R.  R.  Co.  v.  Philadelphia,  47  Pa.  St.  189. 

tanooga  R.  R.  Co.  v.  Dunn,  51   Ala.  128;  3  Leavenworth,  Lawrence  &  Galveston 

Lafayette,    Muncie    &    Bloomington    R.  R.  R.  Co.  v.  Douglas    County,  18   Kans. 

R.  Co.  v.  Geiger,  34  Ind.  185;  Pennsyl-  169;  15  Am.  Railw.  R.  256. 

vania  R.  R.  Co.  v.  City  of  Philadelphia,  4  Jarrott  v.  City  of  Moberly,  5  Reporter, 

583,  per  Dillon,  J. 
210 


POWER   OF    MUNICIPALITIES    TO   ISSUE. 


[§  227. 


isting  railroad.1  The  cost  of  such  constructions  is  always  charge- 
able to  construction  account,  and  not  to  repairs  or  expenses  of 
operation. 

In  like  manner  a  municipality  must  have  legislative  authority 
to  subscribe  to  the  capital  stock  of  a  bridge  company,  or  of  any 
other  private  corporation,  before  it  is  bound  by  its  bonds  issued 
therefor,  even  in  the  hands  of  bond  fide  purchasers.2 


227.  It  is  well  established  that  railroads  are  of  such  general 
public  advantage  that  municipal  corporations  maybe  authorized 
by  legislation  to  aid  in  their  construction  or  maintenance,  except  so 
far  as  such  legislation  is  prohibited  or  restrained  by  constitutional 
provisions.3  In  view  of  the  great  abuse  of  this  power  by  municipal 
corporations  whereby  an  unsupportable  burden  of  debt  has  been 
placed  upon  towns,  cities,  and  counties,  in  portions  of  the  country, 
regrets  have  often  been  expressed  by  judges  and  legal  writers  that 
the  authority  of  legislatures  to  authorize  the  giving  of  aid  to  such 
enterprises  was  ever  recognized  to  be  constitutional;4  but  in  view 


1  Township    of   Rock  Creek  v.  Strong, 
9G  U.  S.  271. 

2  McClure  v.  Township  of  Oxford,  94 
U.  S.  423. 

Ipeke  v.  City  of  Dubuque,  1  Wall. 
175;  .Mitchell  v.  Burlington,  4  Wall.  270; 
Township  of  Pine  Grove  *:.  Talcott,  19 
Wall.  66  i ;  Ri  gers  v.  Bnrlington,  3  Wall. 
654;  Olcotl  v.  Supervisors,  1G  Wall.  678; 
Railroad  Co.  v.  County  of  Otoe,  1G  Wall. 
667;  I. otii  Association  v.  Topeka,  20 
Wall.  655;  St.  Joseph  Township  v.  Rog- 
ers, 16  Wall.  ''.  1 1  ;  Davidson  v.  Ramsey 
County,  18  Minn.  482  ;  Quincy,  Missouri 
&  Pacific  R.  I:  Co.  v.  Morris,  84  III.  410; 
Perry  v.  Kcene,  56  X.  H.  514;  Reineman 
■  -.  R.  K.  Co.  7  Neb.  310J 
Harcourt  '■•  Good,  -'J'.)  Tex.  455,  when: 
many  c  n  ferred  to  in  the  opinion 

of    Wa  k  ■: ■•  •'.  :  ( Cincinnati,    Wilm 
&  Zan     ■  Hi    R.  R.  Co,  v.  <  'linton  <  lounty, 
1  Ohio  St.  77;  Bridgeport   v.  Housatonic 
R.    R.aCo.    I  5    Conn.    -1 7 . >  ;      ( ioddin    v. 
Crump,        I  I,   120;   Nichol    v. 

I  Nashville,  9  Humph.  (Tenn.) 
252  ;  I.  Nashville  R.  R.  Co,  v. 

Count}  "i  I  >a\  id  on,  i  8n<  ed,  637  ;  Leav- 
enworth, Lawrenc  ton  R,  II.  I  !o. 


v.  Douglas  County,  18  Kans.  1G9  ;  City 
of  San  Antonio  v.  Lane,  -32  Tex.  405 ; 
Winn  v.  City  of  Macon,  21  Ga.  275  ;  Peo- 
ple v.  Mitchell,  35  N.  Y.  551  ;  Common- 
wealth v  Pittsburg,  41  Pa.  St.  278  ;  Sharp- 
less  v.  Mayor,  &c.  of  Phila.  21  Pa.  St.  147  ; 
Commonwealth  v.  Perkins,  43  lb.  400; 
Borough  of  North  Lebanon  v.  Arnold,  47 
lb.  489  ;  Augusta  Bank  v.  Augusta,  49  Me. 
507;  Society  for  Savings'^.  City  of  New 
London,  29  Conn.  174;  City  of  Aurora  v. 
West,  9  Ind.  74  ;  22  lb.  88;  Mar-hall  v. 
Silliman,  61  111.  218;  Butler  v.  Dunham, 
27  111.  474;  Chicago,  Rock  Island  &  Pa- 
cific li.  R.  Co.  v.  City  of  Jolict,  79  111.  25; 
Com.  of  Leavenworth  County  v-  Miller, 
7  Kans.  479;  12  Am.  R.  425  j  Davidson 
v.  Ramsey  County,  18  Minn.  482  .  I  ity 
of  St.  Louis  v.  Alexander,  23  Mo.  185  ; 
Chicago,  Burlington  &  Qbincy  R.R.Co. 
v.  County  of  Otoe,  2  Neb.  496  ;  Lawson  v. 
Milwaukee  &  Northern  liy.  Co.  30  Wis. 
597;  Robinson  v.  Bidwell,  22  Cal.  379; 
Stein   v.    Mayor,  &c.  of  Mobile, 

591 ;  Slack  v.  Maysville  &    Lexing R. 

R.  Co.  13  B.  Mon.  (Ky.)  1  ;  Hill 
Bythe  County,  67  N.  C. 
*  "  Look  Dot  thou  upon  the   voting  of 
•J  II 


§  227.]  MUNICIPAL   BONDS   IN    AID    OF   RAILROADS. 

of  the  general  recognition  of  the  propriety  of  such  legislation  it 
is  too  late  now  to  question  the  constitutional  right  of  states  to 
authorize  the  granting  of  aid  to  such  corporations.  The  only  rem- 
edy for  the  evil  is  by  constitutional  provisions  restricting  or  pro- 
hibiting such  legislation  ;  and  accordingly,  within  a  few  years, 
provisions  for  this  purpose  have  been  placed  in  the  constitutions 
of  several  of  the  states. 

Such  legislation  in  aid  of  railroads  is  supported  upon  the  ground 
that  the  building  of  them  is  a  public  affair  ;  and  that  they  are 
public  highways  for  the  public  benefit.  "  The  public  has  an 
interest  in  such  a  road,  when  it  belongs  to  a  corporation,  as  clearly 
as  they  would  have  if  it  were  free,  or  as  if  the  tolls  were  payable 
to  the  state,  because  travel  and  transportation  are  cheapened  by 
it  to  a  degree  far  exceeding  all  the  tolls  and  charges  of  every 
kind,  and  this  advantage  the  public  has  over  and  above  those  of 
rapidity,  comfort,  convenience,  increase  of  trade,  opening  of  mar- 
kets, and  other  means  of  rewarding  labor  and  promoting  wealth." J 
Neither  does  the  fact  that  the  corporation  has  the  right  to  exact 
reasonable  tolls  from  those  who  use  the  road  make  its  main  use  a 
private  one.  The  company  is  private,  but  its  functions  are  public. 
The  state  itself  may  construct  and  maintain  a  railroad  at  the  pub- 
lic expense.  It  may  aid  a  private  corporation  to  do  so  by  an  ex- 
ercise of  the  right  of  taxation,  and  of  the  right  of  eminent  domain 
as  well ;  and  it  has  as  clear  a  constitutional  right  to  allow  a  par- 
ticular portion  of  the  people  to  tax  themselves  to  promote  the 
building  of  a  railroad  in  which  they  have  an  interest.2 

The  fact  that  the  railroad,  in  aid  of  which  a  city  or  county 
makes  a  subscription,  lies  wholly  in  another  state  does  not  neces- 
sarily make  the  subscription  one  any  the  less  for  a  public  pur- 
pose.3 Such  a  railroad  may  greatly  promote  the  general  pros- 
perity and  welfare  of  the  county  or  city.  Thus  it  was  recently 
held  that  the  city  of  Quincy  in  Illinois,  situated  upon  the  eastern 
bank  of  the  Mississippi  River,  might  properly  aid  in  the  construc- 

railroad  bonds  when  it  is  new,  for  at  the  2  Sharpless  v.  Mayor,  &c.  of  Phila.  su- 

last  it  biteth  like  a  serpent,  and  stingeth  pra. 

like  an  adder."     Per  Brewer,  J.,  Leaven-  3  Railroad  Co.  v.  County  of   Otoe,  16 

worth,  Lawrence  &  Galveston  It.  R.  Co.  v.  Wall.  667  ;  Bell  v.  Railroad  Co.  4  Wall. 

Douglas  County,  18  Kans.  169,  184.  598;    Walker  v.    City  of  Cincinnati,  21 

1  Per   Black,    C.   J.,    in    Sharpless    v.  Ohio  St.  14  ;  St.  Joseph  &  Denver  City 

Mayor,  &c.  of  Phila.  21  Pa.  St.  147,  169.  R.  R.  Co.  v.  Buchanan  County  Court,  39 

Mo.  485. 

212 


POWER   OF   MUNICIPALITEIS   TO   ISSUE.  [§  228. 

tion  of  a  railroad  lying  in  the  State  of  Missouri,  running  from  a 
point  on  the  western  bank  of  the  river  opposite  the  city  of  Quincy 
to  a  point  westward  in  Nebraska.1 

228.  Public  policy  chiefly  determines  what  is  a  public  use, 
for  which  the  power  of  taxation  may  be  exercised.  This  whole 
subject  was  ably  discussed  in  the  recent  case  of  Perry  v.  Keene,  in 
New  Hampshire.2  It  was  there  declared  that  the  rule  by  which 
to  determine  whether  an  object  is  a  public  one  for  which  the  legis- 
lature may  properly  authorize  the  levying  of  taxes  is  furnished 
not  so  much  by  the  law  as  by  general  considerations  of  public 
policy  and  political  economy  ;  and  that,  tested  by  this  rule,  a  rail- 
road is  such  a  public  object.  Upon  this  part  the  of  subject  Mr. 
Justice  Ladd  said :  "  No  one  doubts  that  the  building  and  main- 
taining of  our  common  highways  is  a  public  purpose.  Why  ? 
Certainly  for  no  other  reason  than  that  they  furnish  facilities  for 
travel,  the  transmission  of  intelligence,  and  the  transportation  of 
goods.  But  why  should  the  state  take  this  matter  under  its  foster- 
ing care,  imposing  upon  the  people  a  very  great  yearly  burden  in 
the  shape  of  taxes  for  their  support,  any  more  than  many  others 
that  might  be  mentioned,  of  equal  and  perhaps  greater  importance 
to  its  citizens  ?  Is  it  of  greater  concern  to  the  citizen  that  he  should 
have  a  road  to  travel  on,  when  he  desires  to  visit  his  neighbor  in 
the  next  town,  or  transport  the  products  of  his  farm  or  of  his  fac- 
tory to  market  and  bring  back  the  commodities  for  which  they 
may  be  exchanged,  than  that  he  should  have  a  mill  to  grind  his 
com,  a  tanner,  a  shoemaker,  and  a  tailor,  to  manufacture  his  raw 
materia]  into  clothing,  wherewith  his  body  may  be  covered? 
Doubtless  highways  are  a  great  public  benefit.  Without  them  I 
suppose  the  whole  state  would  soon  return  to  its  primal  condition 
of  a  howling  wilderness,  fit  only  for  the  habitation  of  wild  beasts 
and  savages.  I  low  would  it  be  if  there  were  no  mills  for  the  manu- 
facture of  lumber,  no  joiners  or  masons  to  build  houses,  no  manu- 
facturers of  cloth,  no  merchants  or  tradesmen  to  assist  in  the  ex- 
change of  commodities?  These  suppositions  may  appear  some- 
what fanciful,  hut  they  illustrate  the  inquiry,  Why  is  the  build- 
ing of  roads  to  be  regarded  as  a  public  Bervice,  while  many  other 

i  Qnincy,   Mo.  &  Pacific  B.   R.  Co.  v.     Weismer  v.  Village  oJ   I glas,  64  N.  Y. 

Morris,  -  I  [II.  HO.  91,  99. 

a  56  N.  II.  51  i.   See,  in  this  connection, 

213 


§  228.]  MUNICIPAL    BONDS   IN    AID    OF   RAILROADS. 

things  equally  necessary  for  the  upholding  of  life,  the  security  of 
property,  the  preservation  of  learning,  morality,  and  religion,  are 
by  common  consent  regarded  as  private,  and  so  left  to  the  private 
enterprise  of  the  citizens?  The  answer  to  this  question,  surely,  is 
not  to  be  found  in  any  abstract  principle  of  law.  It  is  essentially 
a  conclusion  of  fact  and  public  policy,  the  result  of  an  inquiry  into 
the  individual  necessities  of  every  member  of  the  community 
(which  in  the  aggregate  show  the  character  and  urgency  of  the 
public  need),  and  the  likelihood  that  these  necessities  will  be  sup- 
plied without  interference  of  the  state.  Obviously  it  bears  a  much 
closer  resemblance  to  the  deduction  of  a  politician  than  the  appli- 
cation of  a  legal  principle  by  a  judge.  Should  it  be  found  by 
experience  that  no  person  in  the  state  would,  voluntarily  and  un- 
aided, establish  and  carry  on  any  given  trade  or  calling,  necessary 
and  universally  admitted  to  be  necessary^  for  the  upholding  of  life, 
the  preservation  of  health,  the  maintenance  of  decency,  order,  and 
civilization  among  the  people,  would  not  the  carrying  on  of  such 
necessary  trade  or  calling  thereupon  become  a  public  purpose,  for 
which  the  legislature  might  lawfully  impose  a  tax? 

"  Experience  shows  that  highways  would  not  be  built,  or,  if 
built,  would  not  be  located  in  the  right  places  with  reference  to 
convenient  transit  between  distant  points,  nor  kept  in  suitable 
repair,  but  for  the  control  assumed  over  the  whole  matter  by  the 
state ;  and  so  the  state  interferes,  and  establishes  a  system,  and 
imposes  an  enormous  burden  upon  the  people,  in  the  shape  of 
taxes,  compelling  them  to  supply  themselves  with  what  they  cer- 
tainly need,  but  need  no  more  than  they  need  shoes  or  bread,  — 
and  nobody  ever  complained  that  the  interference  was  unauthor- 
ized, or  the  purpose  other  than  a  public  one." 

To  the  objection  that  railroad  corporations  are  private  ;  that 
the  roads  are  built  and  run  for  private  gain  ;  that  the  public  can 
only  enjoy  the  benefits  offered  them  upon  payment  of  a  toll,  the 
answer  conclusively  made  is,  that  the  character  of  the  agency  em- 
ployed does  not  determine  the  nature  of  the  end  to  be  secured  ; 
that  if  the  purpose  is  public,  it  makes  no  difference  that  the  agent 
by  whose  hand  it  is  attained  is  private.  In  conclusion  it  was  said 
that  a  railroad  must  be  regarded  as  a  public  purpose  for  which 
the  power  of  taxation  may  be  exercised,  inasmuch  as  it  is  univer- 
sally admitted  that  it  is  such  a  public  use  as  affords  just  ground 
for  the  taking  of  private  property  and  appropriating  it  to  that  use. 
214 


POWER    OF   MUNICIPALITIES   TO   ISSUE. 


t§  229' 


229.  There  are  a  few  decisions,  however,  which  hold  that 
the  construction  of  a  railroad  is  not  an  object  for  which  a 
municipal  corporation  can  exercise  the  power  of  taxation,  and  is 
not  an  object  for  which  the  legislature  can  confer  such  power.1 
The  power  of  taxation  can  be  exercised  only  for  a  public  purpose. 
In  determining  what  is  a  public  purpose,  it  is  said  that  the  ur- 
gency of  the  public  need,  or  the  extent  of  the  public  benefit  which 
is  to  follow,  is  not  conclusive.  It  designates  rather  an  object  for 
which,  according  to  settled  usage,  the  government  may  provide, 
as  distinguished  from  an  object  which,  by  like  usage,  is  left  to  pri- 
vate enterprise.  Moreover,  a  public  purpose  of  general  interest 
throughout  the  state  is  essential  to  the  exercise  of  the  power  of 
taxation  by  the  state,  while  a  public  purpose  of  general  interest 
throughout  a  municipal  subdivision  of  a  state  is  essential  to  the 
exercise  of  that  power  by  such  municipal  subdivision.  A  railroad, 
however,  is  regarded  as  a  private  enterprise  ;  and  although  an 
incidental  benefit  may  accrue  to  the  public  from  such  enterprise, 
yet  that  benefit  does  not  afford  a  ground  for  imposing  burdens 
upon  the  public  by  way  of  taxation  in  behalf  of  such  enterprise. 


1  Michigan  seems  to  be  the  only  state 
in  which  the  courts  have  persisted  in  hold- 
ing that  such  legislation  is  incompetent 
apd  invalid  ;  and  these  decisions  have  been 
set  aside  by  the  Supreme  Court  of  the 
United  Stat,-.     Sec  §  246. 

In  New  York  the  validity  of  enabling 
acts,  authorizing  municipal  corporations 
to  subscribe  for  stock,  and  ur  issue  bonds 
in  aid  of  railroads,  was  firsl  considered  by 
the  Court  of  Appeals  in  Bank  of  Rome  v. 
Village  of  Rome,  18  N.  Y.  38,  and  the 
constitutionality  of  such  legislation  was 
there  distinctly  affirmed,  although  there 
had  been  a  decision  against  it  by  the  Su- 
premcCourt.  Clark  v.  City  of  Rochester, 
13  How.  Pr.  204  ;  S.  C.  reversed  on 
appeal,  2  1  Barb.  IHi.  When  this  case 
came  before  the  Court  of  Appeals,  this 
point,  in  view  of  the  decision  in  Bank  of 
Borne  v.  Vi!  age  of  Home,  was  not  insisted 
upon.  28  N-  5  l  "...  The  validity  of  such 
;  cquiesced    in  bj   several 

case*  involving  the  regularity  "i   proceed 
itij:,  under  enabling  acts.     In    Pa 
B         llor,  53  N.  V.  L28,  the  Courl  of  Ap 


peals  held  that  a  mandamus  would  not  lie 
to  compel  a  town  to  issue  bonds  and  sub- 
scribe for  stock  in  a  railroad  company  un- 
der a  mandatory  act  of  the  legislature ;  hut 
the  validity  of  the  acts  was  not  questioned. 
In  Williams  v.  Town  of  Duanesburgh,  06 
N.  Y.  129,  a  majority  of  the  court  was  of 
opinion  that  the  case  of  People  v.  Batchel- 
lor,  had  not  in  any  way  overruled  the  prior 
decisions  in  favor  of  such  legislation. 

In  Iowa  some  of  the  earlier  decisions 
were  against  the  constitutionality  of  such 
legislation.  See,  particularly,  the  able 
opinion  of  Dillon,  C.J.,  in  Hanson  r.  Ver- 
non,  27  Iowa,  28.  But  this  and  other  de- 
cisions to  the  sameeffeel  were  soon  over- 
ruled.    See  §  240. 

I,,  Township  of  Pine  Grove  v.  Talcott, 
l!i  Willi.  666  (1878),  Swayne,  J.,  said  that 
legislation  of  this  character  had  been  had 
in  twenty-one  Btatea  ;  and  that,  in  all  of 
them  hut  two  the  validity  of  it  had  been 
sustained  by  the  bighesl  local courta  'The 
exceptions  are  the  Btatea  of  Michigan  and 
Iowa  above  mentioned. 

215 


§  229.]  '  MUNICIPAL    BONDS   IN   AID   OF   RAILROADS. 

This  view  of  the  subject  is  very  ably  presented  by  Judge  Cooley, 
of  Michigan  : l  "  On  the  ground  of  local  benefit,  a  small  district  of 
the  state  is  to  be  taxed  to  encourage  a  local  enterprise,  which  it  is 
supposed  will  be  of  such  peculiar  local  advantage  that  this  district 
rather  than  the  state  at  large,  or  any  greater  or  smaller  portion 
of  the  state,  should  contribute  to  its  construction.  The  road, 
when  constructed,  is  nevertheless  to  be  exclusively  private  prop- 
erty, owned,  controlled,  and  operated  by  a  private  corporation  for 
the  benefit  of  its  own  members,  and  to  be  subject  to  the  super- 
vision and  control  of  the  state  only  as  other  private  property  is, 
with  such  few  exceptions  as  the  state  in  granting  the  corporate 
powers  has  stipulated  for  in  order  to  secure  impartiality  in  the 
management  of  its  business,  and  to  prevent  extortion.  Primarily, 
therefore,  the  money,  when  raised,  is  to  benefit  a  private  corpora- 
tion ;  to  add  to  its  funds  and  improve  its  property  ;  and  the  ben- 
efit to  the  public  is  to  be  secondary  and  incidental,  like  that  which 
springs  from  the  building  of  a  grist-mill,  the  establishment  of  a 
factory,  the  opening  of  a  public  inn,  or  from  any  other  private 
enterprise  which  accommodates  a  local  want  and  tends  to  increase 
local  values.  A  railroad,  however,  it  is  said,  is  a  public  highway, 
and  as  such  its  construction  is  a  public  purpose,  which  may  be 
accomplished  through  the  instrumentality  of  the  sovereign  power 
of  eminent  domain,  even  when  individuals,  and  not  the  state,  are. 
to  own  and  control  it.  This  argument  is  supposed  to  possess 
great  force,  and  it  therefore  becomes  our  duty  to  examine  it  with 
some  care.  It  is  true  that  a  railroad  in  the  hands  of  a  private 
corporation  is  often  spoken  of  as  a  public  highway,  and  that  it 
has  been  recognized  as  so  far  a  public  object  as  to  justify  the  ap- 
propriation of  private  property  for  its  construction  ;  but  this  fact 
does  not  conclusively  determine  the  right  to  employ  taxation  in 
aid  of  the  road  in  the  like  case.  Reasoning  by  analogy  from  one 
of  the  sovereign  powers  of 'the  government  to  another  is  exceed- 
ingly liable  to  deceive  and  mislead.  An  object  may  be  public  in 
one  sense  and  for  one  purpose,  when  in  a  general  sense  and  for 
other  purposes  it  would  be  idle  and  misleading  to  apply  the  same 
term." 

1  People    v.   Township   of   Salem,    20  ment  of  the  Supreme  Court  of  the  United 

Mich.   452,    Graves,    J.,  dissenting.      In  States  setting  aside  this  case,  declared  the 

Township   of    Pine  Grove  v.  Talcott,  19  dissenting  opinion  to  be  unanswered.    See 

Wall.  666,  677,  Swayne,  J.,  in  the  judg-  §  246. 

216 


POWER    OF   MUNICIPALITIES   TO   ISSUE.  [§  230. 

In  a  subsequent  case,1  the  same  learned  judge  said  :  "  Another 
fatal  objection  to  all  this  legislation  upon  which  the  majority  of 
the  court  were  ilit'ii  agreed  was  not  fully  developed,  though  re- 
ferred to  when  our  judgment  was  declared.  As  we  then  stated, 
the  power  to  impose  such  taxation,  if  existing  at  all,  could  not 
come  from,  and  was  not  aided  by,  the  municipal  votes.  The  legis- 
lature would  have  exactly  the  same  power  to  impose  the  taxation 
without  the  assent  of  the  municipalities  that  it  would  have  to 
permit  it  with  their  assent.  If  they  were  allowed  to  vote  upon 
that  question,  the  permission  would  be  of  favor  and  not  of  right. 
The  authority  must  come  from  the  plenary  power  of  the  legisla- 
lature  over  the  whole  subject  of  taxation,  which  it  would  exercise 
upon  the  municipalities  in  its  discretion.  It  might  seem  fairer 
to  the  people  concerned  to  permit  them  to  vote  upon  the  question  ; 
but  in  some  particulars  the  very  permission  would  work  an  in- 
justice. For  it  needs  no  argument  to  show  that  if  a  railroad 
through  many  municipalities  is  a  public  object,  which  may  be 
aided  by  the  taxation  of  all,  there  is  no  mode  in  which  the  aid 
can  be  given  consistent  with  any  recognized  theory  of  taxation, 
without  an  apportionment  of  the  burden  by  some  rule  or  upon 
some  basis  among  them  all.  This  might  be  clone  if  the  legislature 
prescribed  the  tax ;  but  it  would  be  impossible  under  a  system 
under  which  one  township  might  tax  itself  ten  per  cent,  of  its 
valuation,  another  equally  benefited  by  the  same  objeet  refuse 
to  pay  hut  one,  and  a  third  decline  altogether  to  bear  any  share 
of  the  common  burden.  The  result  of  legislation  like  this  would 
he,  that  the  legislature  would  be  requiring  these  several  munic- 
ipalities to  tax  themselves  for  an  object  common  to  them  all,  but 
without  even  a  pretence  of  an  apportionment  of  the  burden." 

230.  The  want  of  power  in  a  municipal  corporation  to 
issue  bonds  is  always  open  to  inquiry  whether  the  bonds  be 
in  the  hands  of  the  party  to  whom  they  were  issued,  or  have 
■  I  into  i  he  hands  of  bond  fide  purchasers.'-  Every  purchaser 
of  such  bonds  must  take  notice  of  all  the  provisions  of  the  stat- 
ute giving  authority  to  issue    the   bonds,   and   of    any   constitu- 

1  I', ..  i  i-v  r.  state  Treasurer,  s.;  Mich,  ware  Countj  v.  McClintock,  51  l" 

499,  Barnes  v.  Tom  a   o\    I  I    ln-    HJ1  I 

a  Dillon's Municip. Bond    .  l9;Town-  Sykea  u.Mayor,&c.  of   Columbus,  Sup. 

ship  ofEasl  Oakland  -  94  U.  B.  Ct.  of  Miss. 


:    .:,   ..    I.,  nch,  68    III.  160  ;  I"  la- 


■JIT 


§  2-50-1  MUNICIPAL     BONDS   IN    AID    OF   RAILROADS. 

tional  provision  affecting  such  authority."1  Such,  bonds  being  ab- 
solutely void,  no  tax  can  be  legally  collected  to  pay  them  or  the 
interest  accruing  upon  them  ;  and  if  the  tax  be  actually  collected, 
any  tax-payer  may  restrain  the  collector  from  paying  over  the 
money  arising  from  such  illegal  tax.2 

A  charter  of  a  railroad  company  whose  route  was  limited  to 
the  north  side  of  the  Missouri  River  provided  that  counties  in 
which  a  part  of  the  route  of  the  road  might  pass  or  be  located 
might  subscribe  for  its  stock.  A  county  on  the  south  side  of  the 
river,  in  which  no  part  of  the  road  was  constructed  or  located, 
issued  its  bonds  in  aid  of  the  road  without  other  legislative  au- 
thority, and  the  bonds  were  held  void  in  the  hands  of  a  bond  fide 
holder.11 

Authority  given  to  a  municipal  corporation  to  subscribe  for 
stock  in  a  railroad  company  "as  fully  as  any  individual,"  author- 
izes the  corporation  to  issue  negotiable  bonds  in  payment  for  the 
stock.*1  Authority  given  to  a  city  "  to  borrow  money  for  any 
object  in  its  discretion,"5  or  authority  to  "  borrow  money  for  any 
public  purpose,"1  G  authorizes  it  to  subscribe  for  the  stock  of  a  rail- 
road, and  to  borrow  money  on  its  negotiable  bonds  to  pay  for  it 

Authority  to  aid  a  railroad  by  subscriptions  may  be  implied 
from  a  statute  which  recognizes  the  power,  though  it  does  not  ex- 
press it  in  terms.7 

A  distinction  has  been  taken  in  some  cases  that  while  a  mu- 
nicipal corporation  maybe  empowered  to  subscribe  for  the  stock 
of  a  railroad  company,  it  cannot  be  empowered  to  issue  bonds 
and  give  the  proceeds  to  such  company  ;8  but  the  better  opinion 
is,  that  as  respects  legislative  power  donations  and  subscriptions 
fur  stock  stand  on  the  same  ground.9 

1  Williamson  v.  City   of    Keokuk,   44  and  Field,  Miller,  and  Grier,JJ.,  dissented, 

Iowa,  88.  on  the  ground  that  this  was  a  loan  of  credit 

-  Newton  v.  Kerch,  9  Hun  (N.  Y.),  355.  and  not  a  borrowing  of  money.    See  Starin 

3  Sherrard  v.  Lafayette  County,  3  Dill.  v.  Town  of  Genoa,  23  N.  Y.  439,  454. 

236  ;  State  v.  Saline  County,  51  Mo.  350.         *  Gelpcke  v.  City  of  Dubuque,  1  Wall. 

4  Commonwealth  v.    Pittsburg,  41    Pa.      175,  220. 

St  27^  ;   Seybert  v.  City  of  Pittsburg,  1  8  Whitney   v.    Sheboygan    &   Fond   du 

Wall.  272.  Lac  R.  R,  Co.  25   Wis.   167;  Phillips  v. 

5  Meyer  v.  City  of  Muscatine,  1  Wall.  Town  of  Albany,  28  Wis.  340  ;  Sweet  v. 
384,  387.  Hulbert,  51  Barb.  (N.  Y.)  312. 

u  Rogers   v.  Burlington,  3   Wall.  654.         9  Town  of   Queensbury   v.   Culver,  19 
In  this  case  the  bonds  were  issued  directly     Wall.  83. 
to  the  railroad  company,  and  Chase,  C.  J., 

218 


PROVISIONS   RESPECTING   MUNICIPAL   AID.      [§§  231,  232. 

Authority  to  subscribe  for  stock  of  a  railroad  and  issue  bonds 
therefor  does  not  authorize  the  extending  of  aid  to  the  railroad 
company  by  indorsing  its  bonds.1 

II.   Constitutional  and  Statutory  Provisions  respecting  Municipal 
Aid  to  Corporations. 

231.  General  statement.  —  Great  abuse  of  the  power  of  mu- 
nicipal corporations  with  legislative  sanction  to  aid  private  corpo- 
rations in  constructing  railroads  and  other  public  improvements 
has  led  to  the  adoption,  in  most  of  the  states,  of  constitutional  pro- 
visions against  the  granting  of  such  aid.  In  some  instances  this 
inhibition  has  been  extended  also  to  the  state  itself;  while  in 
others  the  restriction  is  applied  to  the  granting  of  aid  by  the 
state,  but  the  legislature  is  left  free  to  authorize  counties  and 
municipalities  to  give  such  aid.  A  restriction  upon  the  legislative 
power  to  authorize  municipal  divisions  of  the  state  to  grant  such 
aid  does  not  apply  to  such  action  by  the  state  itself ; 2  and  on  the 
other  hand  a  restriction  upon  the  state  does  not  apply  to  counties 
and  municipalities  of  the  state.3 

232.  Alabama.4  —  The  state  shall  not  engage  in  works  of  in- 
ternal improvement,  nor  lend  money  or  its  credit  in  aid  of  such  ; 
nor  shall  the  state  he  interested  in  any  private  or  corporate  enter- 
prise, or  lend  money  or  its  credit  to  any  individual,  association,  or 
corporation.  The  general  assembly  shall  have  no  power  to  author- 
ize any  count  v.  city,  town,  or  other  subdivision  of  this  state,  to 
Lend  its  credit,  or  to  grant  public  money  or  thing  of  value  in  aid 
of,  or  to  any  individual,  association,  or  corporation  whatsoever,  or 
to  become  a  stockholder  in  any  such  corporation,  association,  or 
company,  by  issuing  bonds  or  otherwise. 

Under  the  former  Constitution  of  the  state  a  general  law  author- 
izing counties,  cities,  and  towns  to  subscribe  for  stock  in  railroad 
companies,  on  a  vote  of  tin;  citizens  at  a  special  election  held  for 
that  purpose,  was  enacted,5  and  sustained  by  the  courts.6 

i  i;  :     or,  &c.  of  Macon,  53  Ga.  Mon.  (Ky.)  1,16;  Clark  v.  Janesville,  10 

17.,  Wis.  136;  Thompson  u.Cityof  Peru,  29 

i  i,    oi  on.Mun.Cor]  I  ooleyon  End.  305;  Patterson   v.   Supcrviso       13 

Cal.  175. 
Ipcke  v.  City  of  Dubnque,  l  WalL        *  Const.  1875,  art    '. 
i::,,  204;  I      iv.  Dillon,  2  Ohio  St.  607;        »  Act  of  Dec.  31,  i 
Johnson  w.Stark  County,  24  III.  75;  Slack        •  Ex  parte  Selm         GulfR.R.C     I 
o.  Maysville  &  Lexington  B   R.  Co.   18  B.  21i> 


§§  233,  234.]      MUNICIPAL  BONDS  in  aid  of  railroads. 

233.  Arkansas.1 — No  county,  city,  town,  or  other  municipal 
corporation  shall  become  a  stockholder  in  any  company,  associa- 
tion, or  corporation  ;  or  obtain  or  appropriate  money  for,  or  loan 
its  credit  to,  any  corporation,  association,  institution,  or  individual. 
Under  the  former  Constitution  of  the  state  municipal  aid  to  rail- 
road companies  was  allowed,  and  there  were  general  laws  authoriz- 
ing such  aid.2 

234.  California.3 —  The  Constitution  of  the  state  provides  that 
the  credit  of  the  state  shall  not  in  any  manner  be  given  or  loaned 
to  or  in  aid  of  any  individual,  association,  or  corporation,  nor  shall 
the  state,  directly  or  indirectly,  become  a  stockholder  in  any  asso- 
ciation or  corporation. 

By  statute  4  it  is  provided  that  the  several  counties,  including 
the  city  and  county  of  San  Francisco,  shall  be  authorized  to  aid 
in  the  construction  of  railroads  by  the  issue  of  county  bonds  bear- 
ing interest  at  the  rate  of  not  exceeding  seven  per  cent,  per 
annum,  and  payable  within  twenty  years  from  the  date  of  their 
issue,  and  to  provide  by  taxation  for  the  payment  of  the  interest 
and  principal  of  said  bonds  ;  provided,  that  the  whole  amount  of 
said  bonds  thereby  authorized  to  be  issued  shall  not  exceed  five 
per  cent,  of  the  value  of  the  taxable  property  of  said  county,  or 
city  and  county,  according  to  its  valuation  on  the  assessment  roll 
last  preceding  the  time  of  the  issue  of  said  bonds. 

Before  the  granting  of  such  aid,  the  board  of  supervisors  of 
the  county,  or  city  and  county,  proposing  to  grant  such  railroad 
aid,  shall  submit  to  the  qualified  electors  of  said  county,  or  city 
and  county,  at  an  election,  of  which  election  at  least  thirty  days' 
notice  shall  be  given  by  publication  once  a  week  in  a  newspaper 
published  in  said  county,  the  question  whether  such  railroad  aid 
shall  be  granted,  in  which  notice  the  day  on  which  and  the  places 
where  such  election  is  to  be  held  shall  be  stated  ;  and  the  route 
for  which  aid  is  proposed  to  be  granted  shall  be  definitely  de- 
scribed, and  the  amount  of  bonds  to  be  issued   shall  be  stated. 

Ala.   696  ;  Fielder  v.  Montgomery  &  Eu-  3  Const.  1849,  art.  xi.  §  10. 

faula  R.  R.  Co.  51  Ala.  178.  *  Statutes  1870,  ch.  5007,  §§  1,  2.     On 

1  Const.  1874,  art.  xii.  §  5.  construction  of  this  statute  sec  Coleman  v. 

2  See  Act  passed  July  21,  1868,  which  Board  of  Supervisors  of  County  of  Mar- 
took   effect   ninety  days   from   April    10,  ion,  50  Cal.  493. 

1869  ;  State  of  Arkansas  v.  Little  Rock, 

Miss.  River  &  Tex.  Ry.  Co.  31  Ark.  701. 

220 


PROVISIONS   RESPECTING   MUNICIPAL   AID.     [§§  235-237. 

All  elections  authorized  under  the  act  shall  be  conducted  in 
the  same  manner  as  elections  for  state  and  county  officers.  No 
aid  to  railroads  shall  be  granted  unless  a  majority  of  the  elect- 
ors voting  at  such  election  shall  cast  their  votes  in  favor  of  such 
aid. 

235.  Colorado.1  —  Neither  the  state,  nor  any  county,  town, 
township,  or  school-district  shall  make  any  donation  or  grant  to, 
or  in  aid  of,  or  become  a  subscriber  to,  or  shareholder  in,  any  cor- 
poration or  company,  or  a  joint-owner  with  any  person,  company, 
or  corporation,  public  or  private,  in  or  out  of  the  state.  The  gen- 
eral assembly  shall  pass  no  law  for  the  benefit  of  a  railroad  or 
other  corporation,  or  any  individual  or  association  of  individuals, 
retrospective  in  its  operation,  or  which  imposes  on  the  people  of 
any  country  or  municipal  subdivision  of  the  state  a  new  liability 
in  respect  to  transactions  or  considerations  already  past.2 

236.  Florida.3  —  The  credit  of  the  state  shall  not  be  pledged 
or  loaned  to  any  individual,  company,  corporation,  or  association  ; 
nor  shall  the  state  become  a  joint-owner  or  stockholder  in  any 
company,  association,  or  corporation.  The  legislature  shall  not 
authorize  any  county,  city,  borough,  township,  or  incorporated 
district  to  become  a  stockholder  in  any  company,  association,  or 
corporation,  or  to  obtain,  or  to  appropriate  money  for,  or  to  loan 
its  credit  to,  any  corporation,  association,  institution,  or  individual. 

Before  the  adoption  of  these  provisions  municipal  aid  to  railroad 
companies  was  authorized  by  statute,4  and  such  acts  were  held  to 
be  constitutional.5 

237.  Georgia.0  —  The  credit  of  the  state  shall  not  be  pledged 
or  loaned  to  any  individual,  company,  corporation,  or  association, 
and  the  state  shall  not  become  a  joint-owner  or  stockholder  in  any 
company,  association,  or  corporation.  The  general  assembly  shall 
not  authorize  any  county,  municipal  corporation,  or  political  divi- 

1  Const.  1876,  art.  xi.  §  '2.    By  :i  gen-  land  v.  State  of  Florida,aa  to  construction 

eral  law  subscriptions  in  aid  «f  railroads  and  application  of  these  provisions, 

were  formerly  allowed.     R.  S.  1867, 134.  '  See    [nternal    Improvement    Acl    of 

76,  art.  x'.  January  6,  1855. 

'■'■  Amend.  Const.  1875,  art.  8,  §  7.    Sic  -  County  Comm                  i   Columbia 

,  art.  xii.  ^;  8.     S'-e  Bol-  County  <■.  King,  13  Fla 

'•   Const.   isVT,  art.  7. 

22] 


§§  238,  239.]      MUNICIPAL   BONDS  in  aid  of  railroads. 

sion  of  this  state  to  become  a  stockholder  in  any  company,  corpo- 
ration, or  association,  or  to  appropriate  money  for,  or  to  loan  its 
credit  to,  any  corporation,  company,  association,  institution,  or 
individual,  except  for  purely  charitable  purposes. 

The  Constitution  of  1868  provided  that  any  town  or  city  might 
take  stork  in  any  railroad  or  work  of  public  improvement,  or  con- 
tribute to  the  aid  thereof,  after  a  majority  of  the  qualified  voters 
of  such  (own  or  city,  voting  at  an  election  held  for  the  purpose, 
had  voted  in  favor  of  the  same.1 

238.  Illinois.2 —  The  credit  of  the  state  shall  not,  in  any  man- 
ner, be  given  to,  or  in  aid  of,  any  individual,  association,  or  corpo- 
ration. No  county,  city,  town,  township,  or  other  municipality 
shall  ever  become  a  subscriber  to  the  capital  stock  of  any  railroad 
or  private  corporation,  or  make  donation  to,  or  loan  its  credit  in 
aid  of,  such  corporation. 

Subscriptions  by  counties  and  towns  in  aid  of  railroads  were 
allowed  under  the  previous  Constitution,  and  there  were  general 
laws  authorizing  such  subscriptions.3 

239.  Indiana.4 — The  Constitution  of  the  state  provides  that 
no  county  shall  subscribe  for  stock  in  any  incorporated  company, 
unless  the  same  be  paid  at  the  time  of  such  subscription  ;  nor  shall 
any  county  loan  its  credit  to  any  incorporated  company,  nor  bor- 
row money  for  the  purpose  of  taking  stock  in  any  such  company  ; 
nor  shall  the  general  assembly  ever,  on  behalf  of  the  state,  assume 
the  debts  of  any  county,  city,  town,  or  township,  nor  of  any  cor- 
poration whatever. 

By  statute5  it  is  provided  that  whenever  a  petition  shall  be  pre- 
sented to  the  board  of  commissioners  of  any  county,  signed  by 
twenty-five  freeholders  of  any  township  of  such  county,  asking 
such  township  to  make  an  appropriation  of  money  to  aid  a  railroad 
company,  named  in  the  petition,  and  then  duly  organized  under 

i  Const.  1868,  art.  iii.  §  6,  pi.  4.  cie  &  Bloomington  It.  R.  Co.  v.  Gciger,  34 

2  Const.  1870,  art.  iii.  §  38;  art.  xiv.  Ind.  185;  Crawford  County  v.  Louisville, 
additional  section.  New  Albany   &   St.   Louis   Air  Line    Ry. 

3  Laws  Nov.  1,1S49,  and  March, 1,1854;  Co.  39  Ind.  192.  As  to  construction  of 
It.  S.  1809,  pp.  552,  553.  statute,   see,  also,   State  v.  Wheadon,   39 

4  Const.  1851,  ait.  x.  §  6.  Ind.  520;  Bronenberg  '•.  Madison  County, 

5  Act  March    12,  1809,   provides  for  a  41  Ind.  502  ;  Alvis  v.  Whitney,  43  Ind.  83 ; 
legitimate  exercise  of  the  power  of  coun-  Ciooke  v.  Daviess  County, 36  Ind.  320. 
ties  to  subscribe  for  stock.  Lafayette,  Mun- 

000. 


PROVISIONS   RESPECTING   MUNICIPAL   AID.  [§  240. 

the  laws  of  the  state,  in  constructing  a  railroad  in  or  through  such 
township,  by  taking  stock  in,  or  donating  money  to,  such  company, 
not  exceeding  two  per  centum  upon  the  amount  of  taxable  prop- 
erty of  such  township  on  the  tax  duplicate  of  the  county  delivered 
to  the  treasurer  of  the  county  for  the  preceding  year,  it  shall  be 
the  duty  of  such  board  of  commissioners,  after  being  satisfied 
that  such  petition  has  been  properly  signed  by  the  requisite  num- 
ber of  freeholders  of  such  township,  to  cause  the  same  to  be  entered 
at  full  length  upon  their  records,  and  to  order  an  election.  If  a 
majority  of  the  votes  be  in  favor  of  such  railroad  appropriation, 
the  board  of  commissioners  is  required  to  levy  a  tax  to  meet 
it.1 

It  is  to  be  observed  that  the  constitutional  restriction  applies 
to  counties  only.  Accordingly  it  is  provided  by  statute  that  any 
incorporated  city  shall  have  power  to  borrow  money  for  the  pur- 
pose of  subscribing  to  the  stock  of  any  railroad  running  into  or 
through  such  city,  and  to  make  donations  in  money  or  bonds  of 
such  city  in  aid  of  such  roads,  on  petition  of  a  majority  of  the  resi- 
dent freeholders,  provided  that  such  donations  shall  not  be  payable 
until  the  roads  are  so  far  completed  as  to  admit  of  the  running  of 
trains.  Provision  is  made  for  a  tax  to  pay  the  interest,  and  to 
create  a  sinking  fund  for  the  payment  of  the  principal.2  This 
statute  authorizes  the  giving  of  aid  either  by  subscriptions  to  stock 
or  by  donations.3 

240.  Iowa.'1  —  The  Constitution  provides  that  tin:  credit  of  the 
state  shall  not  in  any  manner  be  given,  or  loaned  to,  or  in  aid  of, 
any  individual,  association,  or  corporation  ;  and  that  the  state  shall 

1  Act  May  12, 1869,  amended  March  17,  roads    opposite    such   counties    in    other 

1875;  1  It.  S.  L 876, pp.  736-739.     By  Act  states;  and  cities  and   towns  are  author- 

Dec.  17,  1872,  a  tax-payer  who  lias  paid  ized  to  issue  bonds  for  subscriptions  made 

taxes  levied  under  Act  May  12,  1869,  was  in  aid  of  such  road-. 

entitled  to  a  certificate  of  the  amount  paid         -  1  R.  S.  1876,  p.  298,  §  60 ;   A.CI   March 

by  him,  if  demanded   before  January  1,  14,    1807.     See,  also,   An  Maj    I    I 

1 874,  and  to  stock  from  the  railroad  aided  For  construction,  see  Citj  of  Kokomo  <•. 

for  the  amount  of  the  tax  paid.     I   U.S.  State,  57  [nd.  i  52 :    Noble  v.  Citj  -1  Vin 

1870,  p.  740.    See  Lucas  v.  Tippecanoe  cennes,  42  [nd.  125.     The  statute  i- 

County,  44  Ind.  524.  Btitutional.     City  of   Mount    Vernon   v. 

1;    Act  Dec.  ii,i^7l',i   I:,  s.  1-71;,  p.  Bovey,  52  Ind.  51 
742,  counties  bordering  on  Btate  lines,  or        :;  Indiana   North   >^    South    Ry.  Co  v. 

river-  forming  Mate-  boundaries,  and  town-      City  of  A  1  lira,  .".''.  I  ud.   170. 

ships    and     cities    in     BUCh     Counties,    are  '   Const.    1857,   art.    vii.    §    I;   art.    vni. 

enabled  to  aid  in  the  construction  of  rail-    §  3. 

228 


§  240.]  MUNICIPAL   BONDS   IN    AID    OF   RAILROADS. 

not  become  a  stockholder  in  any  corporation  ;  nor  shall  it  assume 
or  pay  the  debt  or  liability  of  any  corporation,  unless  incurred  in 
time  of  war  for  the  benefit  of  the  state. 

In  1853  the  Supreme  Court  of  the  state  decided  that  a  county 
had  the  constitutional  right  to  aid  in  the  construction  of  a  rail- 
road,1 as  authorized  by  the  Code  of  1851.2  In  1859  this  court 
overruled  its  former  decisions  on  this  subject,  and  held  that  a 
county  had  no  power  to  issue  bonds  in  aid  of  railroads.3  The 
Supreme  Court  of  the  United  States  disregarded  the  latter  deci- 
sions, and  affirmed  the  former.4 

Municipal  corporations  were,  by  statute  passed  in  1860,  pro- 
hibited from  taking  stock  in  any  plank  road,  turnpike,  or  railroad 
company,  or  in  any  way  using  their  credit  in  aid  of  such  corpora- 
tions.5 

In  18G8  municipal  corporations  were  authorized  to  aid  in  the 
construction  of  railroads.6  In  the  following  year  this  act  was 
declared  by  the  Supreme  Court  not  to  be  a  valid  or  legitimate 
exercise  of  the  taxing  power.7  In  18T0  the  legislature  of  this  state 
reasserted  its  authority,  and  reenacted  the  law  with  some  modifi- 
cations ; 8  and  the  same  year  the  Supreme  Court  sustained  the  act 
as  constitutional,  overruling  the  decisions  against  the  constitution- 
ality of  acts  in  aid  of  railroad  companies.9 

By  recent  statutes,10  any  township,  incorporated  town,  or  city, 
may  aid  in  the  construction  of  any  projected  railroad  in  this  state. 

Whenever  a  petition  shall  be  presented  to  the  council  or  trus- 
tees of  any  incorporated  town  or  city,  or  trustees  of  any  township, 

i  Dubuque  County  v.  Dubuque  &  Pa-  6  Act  March  30,  1860;    Rev.?  1860,  § 

cine  R.  R.  Co.  4  Greene  (Iowa),  1.     Fol-  1345;  Code  1873,  p.  98,  §  553. 

lowed  in   State  v.  Bissell,  lb.  328;  Clapp  6  Laws  1868,  ch.  48,  p.  54. 

v.  County  of  Cedar,  5  Iowa,  15;  McMil-  '  Hanson  v.  Vernon,  27  Iowa,  28.     Ch. 

len  v.  Boyles,  County  Judge,  6  Iowa,  304.  J.  Dillon   delivering  the  leading  opinion, 

2  §  114,  Code  1851.  and   ably   sustaining   the  view    that  rail- 

8  Stokes  v.  County  of    Scott,  10  Iowa,  roads  are  private  corporations,  and  that 

166.   Followed  in  State  v.  County  of  Wa-  their  undertakings  can  no  more  be  aided 

pello,    13    Iowa,   388;   Myers  v.  County  by  taxation  than  can  the  undertakings  of 

of  Johnson,    14    Iowa,  47  ;    McMillan  v.  any  other  private   corporation,  or  of  an 

Boyles,  14  Iowa,  107  ;  Ten  Eyck  v.  Mayor  individual, 

of  Keokuk,  15   Iowa,  486  ;  Chamberlain  8  Laws  1870,  April  12. 

v.   City   of  Burlington,    14    Iowa,    395  ;  9  Stewart  v.  Board  of    Supervisors    of 

McClure  v.  Owen,  26  Iowa,  243.  Polk  County,  30  Iowa,  9.     Followed  in 

4,.Gelpcke  v.  City  of  Dubuque,  1  Wall.  Bonnifield  v.  Bidwell,  32  Iowa,  149  ;  Jef- 

1 75.  fries  v.  Lawrence,  42  Iowa,  498. 

1°  Laws  1876,  ch.  123. 

224 


PROVISIONS   RESPECTING   MUNICIPAL    AID.  [§  240. 

signed  by  a  majority  of  the  resident  freehold  tax-payers  of  such 
township,  incorporated  city  or  town,  asking  that  the  question  of 
aiding  in  the  construction  of    any  railroad  be  submitted   to  the 
voters  thereof,  it  shall  be  their  duty  to  immediately  give  notice  of 
a  special  election,  by  publication  in  some  newspaper  published  in 
the  county,  if  any  be  published  therein,  and  also  by  posting  said 
notice  in  five  public  places  of  such  township,  incorporated  city  or 
town,  at  least  twenty  days  before  said  election,  which  notice  shall 
specify  the  time  and  place  of  holding  said  election,  the  line  of 
railroad  proposed  to  be  aided,  the  rate  per  centum  of  tax  to  be 
levied,  and  whether  the  entire  per  centum  voted  is  to  be  collected 
in  one  year,  or  one  half  collected  the  first  *year  and  one  half  the 
following  year  ;  and  the  amount  of  work  upon  said  proposed  rail- 
road line  required  to  be  completed  before  said  tax  shall  be  paid 
to  the  railroad  company,  and  where  the  same  shall  be  performed, 
and  to  what  point  said  road  shall.be  fully  completed,  and  any 
other  conditions  which  shall  be  performed  before  such  tax  shall 
become  due,  collectible,  and  payable  ;   and  in  no  case  shall  such 
tax  become  due,  collectible,  or  payable  until  the  road  is  fully  com- 
pleted to  such  point  as  mentioned  in  the  notice.     At  such  election 
the  question  of  taxation  shall  be  submitted,  and  if  a  majority  J  of 
the  votes  polled  be  "for  taxation,'"  then  the  recorder  of  the  incor- 
porated town,  the  city  clerk,  township  clerk,  or  clerk  of  said  elec- 
tion, shall  forthwith    certify  to  the  county  auditor  the  rate  per 
centum  of  the  tax  thus  voted  by  such  township,  incorporated  town 
or  city,  the  year  or  years  during  which  the  same  is  to  be  collected, 
and  the  time  and  terms  upon  which  the  same,  when  collected,  is 
to  be  paid  to  the  railroad  company,  under  the  conditions  and  stip- 
ulations in  the  said  notice,  together  with   an  exact  copy  of   the 
notice  under  which  such  election  was  held;    which  said  county 
auditor  shall  at  once  cause  to  be  recorded  in  the  office  of  the  re- 
corder of  deeds  of  the  count  v.     When  such  certificate  shall  have 
been  made  ami  recorded,  the  board  of  supervisors  of  the  county 
shall,  at  the  time  of  levying  the  ordinary  taxes  next   following, 
levy  such  taxes  as  are,  voted  miller  the  provisions  of  this  acl 
shown  by  said  certificate,  ami  cause  the  same  to  be  placed  on  tin- 
tax  lists  of  the  proper  township,  incorporated  city  or  town.     Said 
tuxes  shall  be  collected  at  the  time  or  times  specified  in  said  order 
in  the.  same  manner,  ami  be  subject  to  the  same  penalties  for  non- 

1    Laws  1878,  cli.  157. 

225 


§  211.]  MUNICIPAL    BONDS   IN   AID   OF   RAILROADS. 

payment  after  they  are   collectible  as  other  taxes,  or  as  may  be 
stated  in  the  petition  asking  said  election.     The  aggregate  amount 
of  tax  to  be  voted  or  levied  under  the  provisions  of  this  act  in  any 
township,  incorporated  town  or  city,  shall  not    exceed   five    per 
centum  of  the  assessed  value  of  the  property  therein  respectively. 
It  shall  be  the  duy  of  the  county  treasurer  when  required,  in  ad- 
dition to  a  tax  receipt,  to  issue  to  each  tax-payer,  on  his  payment 
of  taxes  voted  in  aid  of  a  railroad  company  under  the  provisions 
of  this  act,  a  certificate  showing  the  amount  of  tax  by  him  paid  in 
aid  of  said  railroad  company,  and  when  the  same  was  paid.     Said 
certificates  are  assignable,  and  when  presented  by  any  person  hold- 
ing the  legal  title   thereto  to  the  president,  managing   director, 
treasurer,  or  secretary  of  the  railroad  company  receiving  the  taxes 
paid  as  shown  by  said  certificate,  in  amount  showing  the  sum  of 
one  hundred  dollars  or  more  of  taxes  to  have  been  paid  for  said 
railroad  company,  it  shall  be  and  is  hereby  made  the  duty  of  said 
railroad  company  to  issue  or  cause  to  be  issued  to  said  person  the 
amount  of  stock  covered  by  said  certificate  or  certificates,  and  if 
the  taxes  paid  as  shown  by  said  certificate  or  certificates  amount 
in  the  aggregate  to  more  or  less  than  any  certain  number  of  shares 
of  said  stock,  then  the  holder  aforesaid  of  such  certificate  or  cer- 
tificates shall  be  entitled  to  receive  of  said  stock  the  number  of 
shares  next  greater  than  the  amount  covered  by  said  certificates, 
upon  making  up  the  deficiency  in  money  or  tendering  the  same 
with  the  said  certificates,  the  said  stock  to  be  estimated  for  the 
purposes  hereof  at  its  par  value. 

First  mortgage  bonds  may  be  issued  and  taken  instead  of 
stock.1 

241.  Kansas.2  —  It  is  provided  by  statute  that  whenever  two 
fifths  of  the  resident  tax-payers  of  any  county,  or  two  fifths  of  the 
resident  tax-payers  of  any  municipal  township,  shall  petition  in 
writing  the  board  of  county  commissioners,  or  whenever  two  fifths 
of  the  resident  tax-payers  of  any  incorporated  city  shall  petition 
the  mayor  and  council  of  such  city  to  submit  to  the  qualified 
voters  of  such  county,  township,  or  city  a  proposition  to  subscribe 
to  the  capital  stock  of,  or  to  loan  the  credit  of  such  county,  town- 

1  Laws  1S78,  ch.  173.  to  aid  in  constructing-  narrow  gauge  rail- 

-  Laws   1877,   ch.  142,  §  1.     See   Laws     roads.     Also  Laws  1876,  ch.  10(5. 
1877,  chs.  143,  144;  also  ch.  141,  relating 

22b' 


PROVISIONS   RESPECTING   MUNICIPAL   AID.  [§  242. 

ship,  or  city  to  any  railroad  company  constructing  or  proposing  to 
construct  a  railroad  through  or  into  such  county,  township,  or  city, 
the  county  commissioners  for  such  county  or  township,  or  the 
mayor  and  council  for  such  city,  shall  cause  an  election  to  be  held 
to  determine  whether  such  subscription  or  loan  shall  be  made  ; 
but  no  county  shall  issue  under  the  provisions  of  this  act  more 
than  one  hundred  thousand  dollars  and  an  additional  five  per  cent, 
indebtedness  of  the  assessed  value  of  such  county ;  and  no  town- 
ship shall  be  allowed  to  issue  more  than  fifteen  thousand  dollars 
and  five  per  cent,  additional  of  the  assessed  value  of  such  town- 
ship ;  and  in  no  case  shall  the  total  amount  of  county,  township, 
and  city  aid  to  any  railroad  company  exceed  four  thousand  dollars 
per  mile  for  each  mile  of  railroad  constructed  in  said  county. 

It  was  in  1873  provided  by  statute  that  all  bonds  heretofore  or 
hereafter  legally  authorized  and  issued  by  a  vote  of  its  electors  in 
any  county  or  township  shall  become  a  lien  upon  all  the  real 
estate  in  such  county  or  township  for  the  payment  of  the  princi- 
pal and  interest  of  such  bonds.1 

242.  Louisiana.2  —  It  is  provided  by  statute  that  it  shall  be 
lawful  for  the  police  juries  and  municipal  corporations  of  this 
state  to  subscribe  to  the  stock  of  corporations  undertaking  works 
of  internal  improvement,  under  the  laws  of  this  state,  on  comply- 
ing with  the  provisions  hereinafter  set  forth. 

All  ordinances  passed  for  such  subscriptions  shall  contain  the 
following  provisions,  namely:  a  statement  of  the  number  and 
amount  of  shaves  proposed  to  be  subscribed  ;  and  also  a  levy 
of  a  tax  on  the  landed  estate,  situated  in  the  parish  or  municipal 
corporation,  sufficient  to  pay  tin-  amount  of  the  subscription,  and 
specifying  tin-  rate  of  taxation,  and  the  time  when  it  shall  be 
payable. 

No  ordinance  shall  be  valid  or  take  effect  until  it  shall  have 
been  approved  and  ratified  by  a  majority  of  the  voters  on  whose 
property  the  tax  is  proposed  to  be  levied,  at  an  election  to  be 
held  specially  for  that  purpose.  The  police  jury  or  municipal 
corporation  shall  prescribe  the  manner  of  holding  such  election, 
and  shall  cause  to  be  furnished  to  the  commissioners  a  properly 

l  La*  i  73,ch.l42j  i  Daasl ■!•'-  StaL-.  mayor  of  a  city  haa  no  power  to  act. 
§  204.  State  of  La.  v.  City  of   Bbreveport,  27 

a  K.    s.     l    70,    §3     2455-2458.     The     La.  Ann.  623. 

227 


§  243.]  MUNICIPAL   BONDS   IN   AID    OF   RAILROADS. 

certified  list  of  the  authorized  voters  :  and  such  election  shall  be 
preceded  by  a  notice  for  thirty  clays,  published  in  one  or  more 
newspapers  in  the  parish  or  municipal  corporation  where  it  shall 
be  held.  If  the  ordinance  be  rejected  by  a  majority  of  the  voters, 
it  shall  be  lawful  at  any  subsequent  period,  at  intervals  of  not  less 
than  six  months,  again  to  take  the  sense  of  the  voters  in  the  same 
manner  as  at  the  first  election. 

The  stock  subscribed  shall  not  belong  to  nor  be  administered 
by  the  parish  or  municipal  corporation  by  which  the  subscription 
shall  be  made,  but  shall  belong  to  the  tax-payers,  who  shall  have 
paid  therefor ;  and  the  tax  receipt  of  each  tax-payer  shall  entitle 
him  to  a  certificate,  transferable  by  delivery,  from  the  corporation 
to  which  subscription  has  been  made,  for  an  amount  equal  to  the 
amount  of  his  tax  paid. 

243.  Maine.  —  The  Constitution  provides  that  the  credit  of 
the  state  shall  not  be  directly  or  indirectly  loaned  in  any  case.1 
By  statute  2  any  city  or  town,  by  a  two  thirds  vote,  at  any  legal 
meeting  called  for  the  purpose,  may  raise  by  tax  or  loan,  from 
time  to  time  or  all  at  once,  a  sum  of  money  not  exceeding  in  all 
five  per  cent,  on  its  regular  valuation  for  the  time  being,  and  ap- 
propriate it  to  aid  in  the  construction  of  railroads  in  such  manner 
as  it  may  deem  proper ;  and  for  such  purpose  may  make  contracts 
with  any  person  or  railroad  corporation. 

A  city  or  town  raising  money  by  loan  as  aforesaid  shall  raise 
and  pay,  besides  the  interest,  each  year  after  the  third,  not  less 
than  three  per  cent,  of  the  principal  unless  it  is  satisfactorily  pro- 
vided for  in  some  other  way.  Meetings  for  the  purposes  aforesaid 
in  cities  shall  be  called  by  the  municipal  officers,  on  the  order  of 
the  common  council,  as  meetings  for  the  election  of  city  officers 
are  called  ;  and  said  common  council  shall  set  forth  in  their  order 
the  substance  of  the  proposition  to  be  inserted  in  the  warrant. 
At  such  meetings,  the  legal  voters  shall  vote  in  wards  by  ballot, 
those  in  favor  of  the  proposition  in  the  warrant  voting  "  Yes,"  and 
those  opposed  voting  "No;"  the  ballots  cast  shall  be  sorted, 
counted,  and  declared  in  open  ward  meeting,  and  recorded  ;  and 
the  clerks  shall  make  returns  thereof  to  the  municipal  officers, 
who  shall  examine  such  returns  ;  and  if  two  thirds  of  the  ballots 

1  Amend.  1848,  art.  vi.  2  Rev,  gtat-  i871,ch.  51,  §§  80,  82,  83  ; 

Act  1867,  ch.  119,  §§  1-4. 

228 


PROVISIONS   RESPECTING   MUNICIPAL   AID.       [§§  "244.  245. 

cast  are  in  favor  of  the  proposition,  said  officers  shall  forthwith 
proceed  to  cany  the  same  into  effect.1 

244.  Maryland.2  —  No  county  of  this  state  shall  contract  any 
debt  or  obligation  in  the  construction  of  any  railroad,  canal,  or 
other  work  of  internal  improvement,  nor  give  or  loan  its  credit  to 
or  in  aid  of  any  association  or  corporation,  unless  authorized  by 
an  act  of  the  general  assembly,  which  shall  be  published  for  two 
months  before  the  next  election  for  members  of  the  house  of  dele- 
gates in  the  newspapers  published  in  such  county,  and  shall  also 
be  approved  by  a  majority  of  all  the  members  elected  to  each 
house  of  the  general  assembly  at  its  next  session  after  such  elec- 
tion. 

245.  Massachusetts.3  —  By  statute  any  town  and  any  city 
having,  by  the  census  of  the  year  eighteen  hundred  and  seventy, 
less  than  thirty  thousand  inhabitants,  within  which  the  road  of 
any  railroad  corporation  hereafter  organized,  or  the  roads  of  any 
existing  railroad  corporation  not  now  constructed,  shall  be  located 
or  terminate,  may  subscribe  for  and  hold  shares  of  the  capital 
stock  or  the  securities  of  such  railroad  corporations,  or  either  of 
them,  to  an  amount  not  exceeding,  for  the  aggregate  in  all  such 
corporations,  two  per  centum  of  the  valuation  of  such  town  or 
city  for  the  year  in  which  the  subscription  is  made;  and  towns 
having  a  valuation  not  exceeding  three  millions  of  dollars  may 
subscribe  for  and  hold  the  securities  of  such  corporation,  or  either 
of  them,  to  an  amount  not  exceeding  three  per  centum  of  the 
valuation  of  such  town,  in  the  year  in  which  such  subscription  is 
made,  in  addition  to  the  two  per  centum  hereinbefore  provided: 
provided,  that  two  thirds  of  the  legal  voters,  present  and  voting 
by  ballot  and  using  the  check-list,  at  legal  meetings  called  for  the 
purpose  in  such  town  or  city,  and  held  in  like  manner  as  the 
meetings  for  the  choice  of  municipal  oll'icers  are  now  held  by  law 
in  such  town  or  city  respectively,  shall  vote  to  subscribe  tor  such 
shares  or  securities  in  such  corporation. 

Towns  and  cities  subscribing  Eor  such  stock  or  securities  may 

i  On  construction  of  this  statute,  see  :;  A.cta  1874,  ch.  372,  §35.  For  pre- 
Portland  0  lensburg  R.  R.  Co.  v.  nous  laws,  see  A.c1  1874,  ch.  251;  Acta 
Blandish,  65  Mi  1870,  ch. 

-  ( lonst,  i  867,  art.  iii.  \  54. 

22!  I 


§  246.]  MUNICIPAL    BONDS    IN    AID    OF    RAILROADS. 

raise  money  to  pay  for  the  same  by  tax  or  loan,  and  may  issue 
their  notes  or  bonds  for  such  loan.1 

Any  town  or  city  owing  debts  incurred  to  obtain  funds  for  one 
or  more  subscriptions  for  the  capital  stock  and  securities  of  any 
railroad  corporation  may,  for  the  purpose  of  paying  the  same,  es- 
tablish a  sinking  fund,2  and  may  contribute  thereto  any  sums 
which  it  may  receive  from  the  sale  of  such  stock  or  securities,  or 
from  any  dividends  or  interest  upon  the  same,  or  from  taxes  which 
it  may  vote  to  raise  for  the  payment  of  such  indebtedness.  Any 
town  or  city  owing  such  debts  shall  annually  raise  by  taxation  a 
sum  sufficient  to  pay  the  interest  on  the  same,  or,  if  there  is  any 
income  derived  from  the  capital  stock  or  securities  owned  by  such 
town  or  city  as  aforesaid,  a  sum  sufficient  to  pay  the  excess  of 
such  interest  payable  by  said  town  or  city  over  such  income. 

No  town  or  city  shall  hereafter  increase  its  indebtedness3  for 
the  purpose  of  subscribing  to  the  stock  or  securities  of  railroad 
colorations,  to  an  amount  which,  with  the  existing  net  indebted- 
ness of  such  town  or  city  incurred  for  any  purpose,  shall  exceed 
the  limit  of  three  per  centum  of  the  valuation  of  the  taxable  prop- 
erty therein,  to  be  ascertained  by  the  last  preceding  town  or  city 
valuation  for  the  assessment  of  taxes;  but  the  limitation  of  this 
act  shall  not  apply  to  temporary  loans  in  anticipation  of  the  taxes 
of  the  year  in  Avhich  such  debts  are  incurred,  and  the  year  next 
ensuing,  and  expressly  made  payable  therefrom  by  vote  of  the  said 
town  or  city. 

246.  Michigan.4  —  The  credit  of  the  state  shall  not  be  granted 
to,  or  in  aid  of,  any  person,  association,  or  corporation.  The  state 
shall  not  subscribe  to,  or  be  interested  in,  the  stock  of  any  com- 
pany, association,  or  corporation.  The  state  shall  not  be  a  party 
to,  or  interested  in,  any  work  of  internal  improvement,  nor  en- 
gaged in  carrying  on  any  such  work,  except  in  the  expenditure  of 
grants  to  the  state  of  lands  or  other  property. 

The  Supreme  Court  of  this  state  on  May  26,  1870,  rendered 
a  decision  that  the  legislature  could  confer  no  authority  upon  a 
municipal  corporation  to  aid  the  construction  of  a  railroad,  and  to 
raise  money  therefore  by  taxation.5 

1  Acts  1874,  ch.  372,  §  39.  4  Const.  1850,  art.  xiv.  §§  6,  8,  9. 

2  Acts  1876,  ch.  133,  §§1,3.  6  pe0ple  v.  Township  Board  of  Salem, 
8  Acts  1876,  ch.  175.                                      20  Mich.   452;  4  Am.  R.  400.     Followed 

230 


PROVISIONS   RESPECTING   MUNICIPAL   AID.  [§  247. 

By  a  statute  enacted  in  1875,  counties,  townships,  cities,  and 
villages,  which  had  issued  bonds  in  aid  of  the  construction  of  any 
railroad  prior  to  the  26th  day  of  May,  1870,  are  authorized  to  pro- 
vide for  the  payment  of  the  principal  and  interest  of  the  same  by 
a  tax  to  be  collected  from  the  taxable  property  of  the  corporation  ; 
and  are  also  authorized  to  substitute  new  bonds  for  such  as  are 
outstanding.1 

This  latter  statute  was  doubtless  passed  in  consequence  of  the 
decision   of   the   Supreme   Court  of   the  United  States,2  that  the 
legislation  of  this  state  authorizing  municipal  corporations  to  aid 
in  the  construction  of   railroads  was  valid,  and  that  the  decisions 
of  the  Supreme  Court  of  the  state  to  the  contrary  are  not  to  be 
respected,  because  not  satisfactory  in  principle,  and  the  subject 
matter  of  the  decisions  is  not  local,  but  belongs  to  the  domain  of 
general  jurisprudence.     "  In  this  class  of  cases,"  said  Swayne,  J., 
delivering  the  judgment   of   the   Supreme   Court  of    the   United 
States,  "  this  court  is  not  bound  by  the  judgment  of  the  courts  of 
the  states  where  the  cases  arise.     It  must  hear  and  determine  for 
itself.    Here,  commercial  securities  are  involved.    When  the  bonds 
were  issued,  there  had  been  no  authoritative  intimation  from  any 
quarter  that  such  statutes  were  invalid.     The  legislature  affirmed 
their  validity  in  every  act  by  an  implication  equivalent  in  effect 
to  an  express  declaration.     And  during  the  period  covered  by  their 
enactment,  neither  of  the  other  departments  of  the  government  of 
the  state  lifted  its  voice  against  them.     The  acquiescence  was  uni- 
versal." 

247.  Minnesota.3  —  The  credit  of  the  state  shall  never  be  given 
or  loaned  in  aid  of  any  individual  association  or  corporation.     Tic 
legislature  shall  not  authorize  any  county,  township,  city,  or  other 
municipal  corporation  to  issue  bonds  or  to  become  indebted  in  any 
manner  to  aid  in  the  construction  or  equipment  of  any  or  all   rail- 
roads to  any  amount  thai  Bhall  exceed  ten  per  centum  of  the  value 
of  the  taxable   property   within   such  county,  township,  city,  or 
other  municipal  corporation.     The  amounl   of  such  taxable  prop- 
in   People  >■.  State  Treasurer,   23   Mich.        -  Township  of  Pine  Grove  v.  Talcott, 
People  v.  State  Treasurer,  24  Mich.     19  Wall.  666  (1873). 
■  Thomas  u.Cit)  of  Porl    Buron,  -'7        ;;  Const.  1857,   art,    ix.    g  LO;  and  Bee 
Mich. 320.  Graves,  J.  dissenting. See §229.     Amendments,  1858  and  I 

i  Laws  i  375.  p.  193. 

231 


§§  248,  249.]        MUNICIPAL  BONDS  in  aid  of  railroads. 

erty  is  to  be  ascertained  and  determined  by  the  last  assessment  of 
said  property  made  for  the  purpose  of  state  and  county  taxation 
previous  to  the  incurring  of  such  indebtedness.1 

Authority  to  aid  the  construction  of  railroads  has  frequently 
been  conferred  upon  cities  and  towns  by  special  acts.2 

248.  Mississippi.3 — The  credit  of  the  state  shall  not  be 
pledged  or  loaned  in  aid  of  any  person,  association,  or  corpora- 
tion :  nor  shall  the  state  hereafter  become  a  stockholder  in  any 
corporation  or  association.  The  legislature  shall  not  authorize 
any  county,  city,  or  town,  to  become  a  stockholder  in,  or  to  loan 
its  credit  to,  any  company,  association,  or  corporation,  unless  two 
thirds  of  the  qualified  voters  of  such  county,  city,  or  town,  at  a 
special  election  or  regular  election  to  be  held  therein,  shall  assent 
thereto.4 

249.  Missouri.5  —  No  county,  township,  city,  or  other  munici- 
pality si i all  hereafter  become  a  subscriber  to  the  capital  stock  of 
any  railroad  or  other  corporation  or  association,  or  make  appro- 
priation or  donation,  or  loan  its  credit  to  or  in  aid  of  any  such 
corporation  or  association,  or  to  or  in  aid  of  any  college  or  institu- 
tion of  learning,  or  other  institution,  whether  created  for  or  to  be 
controlled  by  the  state  or  others.  All  authority  heretofore  con- 
ferred for  any  of  the  purposes  aforesaid  by  the  general  assembly, 
or  by  the  charter  of  any  corporation,  is  hereby  repealed.  The 
general  assembly  shall  have  no  power  to  give  or  to  lend,  or  to 
authorize  the  giving  or  lending  of  the  credit  of  the  state,6  in  aid  of 
or  to  any  person,  association,  or  corporation,  whether  municipal  or 
other,  or  to  pledge  the  credit  of  the  state  in  any  manner  whatso- 
ever for  the  payment  of  the  liabilities,  present  or  prospective,  of 
any  individual,  association  of  individuals,  municipal  or  other  cor- 
poration whatsoever.  The  general  assembly  shall  have  no  power 
to  make  any  grant,  or  to  authorize  the  making  of  any  grant,  of 
public  money  or  thing  of  value  to  any  individual,  association  of 

1  Amendment  to  Const,  adopted  Nov.         3  Const.  1868,  art.  xii.  §§  5,  14. 

5,  1S72.  This  provision  has  reference  4  As  to  construction  of  this  require- 
only  to  future  legislation.  State  v.  Town  ment  of  a  two  thirds  vote,  see  City  of 
of  Clark,  23  Minn.  422.  Vicksburg  v.  Lombard,  51  Miss.  Ill,  126. 

2  As   for   instance    Spec.   Laws    1869,  6  Const.  1875,  art.  ix.  §  6. 

■chs.  34,  35,  44;  Spec.  Laws  1868,  chs.  20,  6  Const.  1875,  art.  iv.  §§  45,  46,  47,  49. 
24  ;  Spec.  Laws  1870,  ch.  49. 

232 


PROVISIONS   RESPECTING    MUNICIPAL   AID.  [§  249. 

individuals,  municipal  or  other  corporation  whatsoever.  The 
general  assembly  shall  have  no  power  to  authorize  any  county, 
city,  town,  or  township,  or  other  political  corporation  or  subdi- 
vision of  the  state  now  existing,  or  that  may  be  hereafter  estab- 
lished, to  lend  its  credit,  or  to  grant  public  money  or  thing  of 
value,  in  aid  of  "or  to  any  individual,  association,  or  corporation 
whatsoever,  or  to  become  a  stockholder  in  such  corporation,  asso- 
ciation, or  company.  The  general  assembly  shall  have  no  power 
hereafter  to  subscribe,  or  authorize  the  subscription  of  stock  on 
behalf  of  the  state,  in  any  corporation  or  association,  except  for 
the  purpose  of  securing  loans  heretofore  extended  to  certain  rail- 
road corporations  by  the  state.  The  general  assembly  shall  pass 
no  law  for  the  benefit  of  a  railroad  or  other  corporation,  or  any 
individual  or  association  of  individuals,  retrospective  in  its  opera- 
tion, or  which  imposes  on  the  people  of  any  county  or  municipal 
subdivision  of  the  state  a  new  liability  in  respect  to  transactions 
or  considerations  already  past.1 

The  former  Constitution  of  Missouri 2  provided  that  "  the  gen- 
eral assembly  shall  not  authorize  any  county,  city,  or  town  to  be- 
come a  stockholder  in,  or  to  loan  its  credit  to,  any  company,  asso- 
ciation, or  corporation,  unless  two  thirds  of  the  qualified  voters  of 
such  county,  city,  or  town,  at  a  regular  or  special  election  to  lie 
held  therein,  shall  assent  thereto."  This  prohibition  extended  to 
townships  which  were  not  incorporated  municipal  bodies,  although 
not  named  in  the  constitutional  provision.3 

A  statute4  authorizing  such  aid  when  sanctioned  by  lk  two  thirds 
of  the  qualified  voters  of  the  township  voting  at  the  election  "  was 
at  first  regarded  as  in  conflict  with  the  Constitution,5  but  this  deci- 
sion was  afterwards  overruled;6  and  though  the  Supreme  Court 
of  Missouri  afterwards  held  the  act  unconstitutional,7  the  federal 
court.-,  disregarded  the  stale  decision.8 

Under  this  Constitution  tin-  legislature  could  not  authorize  a 
count  v  to  issue  its  bonds  to  secure  the  establishment  of  a.  school  oi 

i   Const.  1-75,  art.  xii.  §  10.  3C0  ;  County  of  Cass  /•.  Jordan,  95  I  ,  S. 

-  m  i -';:.,  g  14,  art.  xi.  373. 

•  I;  i  man  v.  Bates  County,  92  U.  S.  :  State  Brassfield,  referred  t<>  in 
569 ;  Jordan  v.  Cass  County,  8  Dill.  185.  Foot<  v.  Johnson  Count 

*  Approved  March  23, 18i  Westermann     v.     Cape     Girardeau 

rshman    v.  inty,   supra,     <  lountj .  I  .  S   l     C.  foi  Mfo.  7  Cent    I    J 

gee  §206  I;   Foote  v.  Johnson  <  lountj  ,  6  <  <  nt 

I  '    isst>.  Johnston,  '.).')  I'.  S.     1..  J.  345. 


§  250.]  MUNICIPAL    BONDS   IN    AID    OF   RAILROADS. 

mines  within  its  limits,  except  in  compliance  with  the  requirement 
that  the  proposition  be  assented  to  by  a  vote  of  two  thirds  of  the 
voters  of  the  county.1 

In  conflict  with  this  constitutional  provision  was  also  an  act 2 
authorizing  certain  municipalities  to  purchase  lands  and  donate, 
lease,  or  sell  the  same  to  a  railroad  company  as  a  means  of  induc- 
ing it  to  locate  and  build  its  machine-shops  on  the  lands,  and  of 
assisting  it  to  do  so,  and  for  this  purpose  to  issue  its  bonds,  to  be 
paid  b}^  taxation,  on  the  sanction  of  a  majority  vote.    It  is  a  "  loan 
of  credit"  within  the  meaning  of  the  Constitution  for  a  munici- 
pality to  purchase  lands,  pay  the  price  in  its  bonds,  and  give  the 
lands  to  a  railroad  company.3     "  If  the  bonds  in  suit,"  said  Judge 
Dillon,  "had  been  executed  and  delivered  directly  to  the  railroad 
company  as  the  consideration  for  its  agreement  to  locate  its  ma- 
chine-shops within  the  town,  then,  on   the  only  assumption   on 
which  the  bonds  can  be  sustained,  viz.,  that  such  shops  are  part 
of  the  railroad,  or  necessary  for  its  use,  would  not  the  execution 
and  delivery  of  such  bonds  to  the  railway  company  be  the  loaning 
by  the  town  of  its  credit  to  the  company  ?     It  is  not  different  in 
essence,  and  particularly  in  view  of  the  object  of  the  Constitution, 
viz.,  to  prevent  taxing  the  people  without  the  required  consent, 
that  the  town  sells  its  own  bonds  and  gives  to  the  company  the 
proceeds,  instead  of  the  bonds  themselves.    The  bonds  in  question, 
if  valid,  create  a  debt  against  the  defendant  city  for  the  benefit 
of  a  railroad  corporation,  and  are  thus  within  the  mischief  or  evil 
which  the  Constitution  aimed  to  remedy.     Why,  then,  should  not 
the  constitutional  provision  be  held  applicable  to  these  bonds  ?     It 
cannot  be  maintained,  on  solid  grounds,  that  the  barrier  of  a  two 
thirds  vote,  weak  and  ineffectual  as  it  has  proved  to  be,  can  be 
evaded  by  a  mere  change  of  the  form  of  the  aid,  that  is,  by  giv- 
ing the  aid  in  the  shape  of  a  donation  of  the  proceeds  of  credit,  in- 
stead of  a  subscription  for  stock,  or,  instead,  giving  the   bonds 
directly  to  the  company  which  the  municipality  desires  to  assist." 

250.  Nebraska.4  —  No  city,  county,  town,  precinct,  municipal- 
ity, or  other  subdivision  of  the  state  shall  ever  become  a  subscriber 

1  State   v.  Curators  State  University,  C.  C.  W.  D.  Mo.  April  T.  1S78),  5  Re- 
57  Mo.  178.  porter,  583. 

2  Of  March  18,  1870.  4  Const.  1875,   art.  xi.  Municipal  Cor- 

3  Jarrott   v.   City   of  Moberly    (U.    S.  porations. 

234 


PROVISIONS   RESPECTING   MUNICIPAL  AID.  [§  251. 

to  the  capital  stock,  or  owner  of  such  stock,  or  any  portion  or  in- 
terest therein,  of  any  railroad  or  private  corporation,  or  associa- 
tion. No  city,  county,  town,  precinct,  municipality,  or  other 
subdivision  of  the  state,  shall  ever  make  donations  to  any  railroad. 
or  other  works  of  internal  improvement,  unless  a  proposition  to  do 
so  shall  have  been  first  submitted  to  the  qualified  electors  thereof 
at  an  election  by  authority  of  law  ;  provided,  that  such  donations 
of  a  comity  with  the  donations  of  such  subdivisions  in  the  aggre- 
gate shall  not  exceed  ten  per  cent,  of  the  assessed  valuation  of 
such  county  ;  provided,  further,  that  any  city  or  county  may,  by 
a  two  thirds  vote,  increase  such  indebtedness  five  per  cent,  in  ad- 
dition to  such  ten  per  cent.,  and  no  bonds  or  evidences  of  indebt- 
edness so  issued  shall  be  valid  unless  the  same  shall  have  indorsed 
thereon  a  certificate  signed  by  the  secretary  and  auditor  of  state, 
showing  that  the  same  is  issued  pursuant  to  law. 

The  credit  of  the  state  shall  never  be  given  or  loaned  in  aid  of 
any  individual  association  or  corporation.1 

At  the  time  of  the  adoption  of  this  constitutional  provision 
there  was  a  statute  in  force 2  enabling  counties,  cities,  and  pre- 
cincts to  issue  bonds  to  aid  works  of  internal  improvement  not 
exceeding  ten  per  cent,  of  the  assessed  value  of  the  taxable  prop- 
erty, upon  a  two  thirds  vote  in  favor  of  such  aid.  This  law  not 
being  in  conflict  with  the  Constitution  continued  in  force  after  its 
adoption.  The  Constitution  itself,  of  its  own  force,  did  not  invest 
cm: uties  with  any  inherent  power  to  grant  aid  independently  of 
legislative  authority,  and,  therefore,  without  such  authority  the 
limit  of  ten  per  cent,  could  not  be  extended  by  an  additional  live 
per  cent.  The  Constitution  was  restrictive  merely  upon  the  Legis- 
lative discretion;  it  fixed  a  boundary  beyond  which  the  legislature 
could  n.»t  go.  Within  the.  boundary  set  the  whole  matter  was 
lefl  to  legislative  authority.  A  vote  of  a  donation  to  the  amount 
of  fifteen  per  cent,  of  the  taxable  property,  being  a  vol.-  in  exc<  9S 
of  the  statutory  limit,  was  held  void,  and  the  issue  of  bonds  under 
it  enjoined.8 

251.  Nevada.4  —  The  state  shall  not  donate  or  loan  money  or 

i  (,  Brt<  rij.  §§  2,::.  ':  Reineman  v.  Covington,  Columbus  ft 

■z  An.  of  Feb.   15,   I  imended     Black  Hill-  R    R  ' 

March  3, 1870,  and    Feb.  it,   1875;  Gen.        l  Coi   I    I   64,  art.  viii.  §§  9, 10. 

.  -1  I-   ;     I.:i\\s  I  B75,   D, 

285 


§§  252-255.]        MUNICIPAL  BONDS  in  aid  of  railroads. 

its  credit,  subscribe  to  or  be  interested  in  the  stock  of  any  com- 
pany, association,  or  corporation,  except  corporations  formed  for 
educational  or  charitable  purposes.  No  county,  city,  town,  or 
other  municipal  corporation,  shall  become  a  stockholder  in  any 
joint  stock  company,  corporation,  or  association  whatever,  or  loan 
its  credit  in  aid  of  any  such  company,  corporation,  or  association, 
except  railroad  corporations,  companies,  or  associations. 

252.  New  Hampshire.  —  In  this  state  towns  were  at  one 
time  1  authorized  upon  a  two  thirds  vote  to  raise  money  by  tax  or 
loan  to  aid  the  construction  of  any  railroad  in  the  state  to  an 
amount  not  exceeding  five  per  cent,  of  its  valuation  for  that  year. 
The  act  giving  this  authority  was  repealed  in  1877  by  a  statute 
which  provided  that  no  town  or  city  shall  thereafter  directly  or 
indirectly  loan  or  give  its  money  or  credit,  in  any  form,  for  the 
benefit  of  any  corporation  having  for  its  object  a  dividend  of  prof- 
its, nor  in  any  way  aid  the  same  by  taking  the  stock,  bonds,  or 
other  obligations  of  such  corporation.2  This  provision  was  made 
a  part  of  the  Constitution  of  the  state  by  an  amendment  adopted 
the  same  year.3 

254.  New  Jersey.4  —  The  credit  of  the  state  shall  not  be  di- 
rectly or  indirectly  loaned  in  any  case. 

Municipal  subscriptions  have  been  authorized  by  the  legislature 
in  favor  of  particular  roads.5 

255.  New  York.6  —  Neither  the  credit  nor  the  money  of  the 
state  shall  be  given  or  loaned  to  or  in  aid  of  any  association,  cor- 
poration, or  private  undertaking.  No  county,  city,  town,  or 
village  shall  hereafter  give  any  money  or  property,  or  loan  its 
money  or  credit,  to  or  in  aid  of  any  individual,  association,  or  cor- 
poration, or  become  directly  or  indirectly  the  owner  of  stock  or  of 
bonds  of  any  association  or  corporation,  nor  shall  any  such  county, 
city,  town,  or  village  be  allowed  to  incur  any  indebtedness,  ex- 
cept for  county,  city,  town,  or  village  purposes.    This  section  shall 

1  Act  1864,  p.  2890;  G.  S.  1867,  ch.  34,  5  As  for  instance  in  favor  of  the  Pas- 
§§  16-20.  This  law  declared  constitu-  saic  Valley  &  Peapack  E.  R.  Co.  Act 
tional.     Perry  i'.  Keene,  56  N.  H.  514.  April  9,  1868.;  Lane  v.  Schomp,  20  N.J. 

2  July  19,  1877  ;  Laws  1877,  ch.  69.  Eq.  82. 

3  Amendment  1877;  ratified  March  13.  6  Const.    Amendment    1874,  art.   viii. 

4  Const.  1876,  art.  iv.  §  6,  pi.  3.  §  10,  went  into  effect  Jan.  1,  1875. 

236 


PROVISIONS   RESPECTING   MUNICIPAL   AID.  [§  256. 

not  prevent  such  county,  city,  town,  or  village  from  making  such 
provision  for  the  aid  or  support  of  its  poor  as  may  be  authorized 
by  law.1 

This  amendment  was  adopted  in  view  of  the  disastrous  conse- 
quences of  legislation  inaugurated  in  1869,2  whereby  towns  and 
other  municipal  corporation  swere  authorized  to  loan  their  credit 
in  various  ways  to  aid  in  the  construction  of  railroads.  This 
authority  was  obtained  by  a  petition  of  a  majority  of  the  tax- 
payers of  the  town  or  corporation,  representing  a  majority  of  the 
taxable  property,  to  the  county  judge,  who  was  authorized  to 
determine  whether  such  majority  had  petitioned,  and  to  appoint 
commissioners  to  issue  bonds  not  exceeding  twenty  per  cent,  of 
the  taxable  property  of  the  corporation. 

On  the  first  clay  of  January,  1875,  when  the  amendment  went 
into  effect,  all  action  on  the  part  of  any  town  to  issue  its  bonds 
in  aid  of  a  railroad  not  then  completed  at  once  became  nugatory, 
unless  by  operation  of  law,  or  by  some  valid  agreement,  there  had 
been  created  prior  to  that  time  a  right  to  have  such  action  per- 
fected by  the  issuing  of  bonds.3 

256.  North  Carolina.4 —  No  county,  town,  or  other  municipal 
corporation  shall  contract  any  debt,  pledge  its  faith,  or  loan  its 
credit,  nor  shall  any  tax  be  levied  or  collected  by  any  ofiicers  of 
the  same,  except  for  the  necessary  expenses  thereof,  unless  by  a 
vote  of  a  majority  of  the  qualified  voters  therein. 

It  is  provided  by  statute6  that  the  county  commissioners  <>i'  the 

several  counties  in  this  state  shall  have  power  to  subscribe  stock 

to  any  railroad   company  or  companies,  when  necessary  to  aid  in 

the  completion  of  any  railroad  in  which  the  citizens  of  the  county 

have  an  inte] 

The  commissioners  of  any  county  proposing  to  take  stock  in 
any  railroad  company  sliall  meei  and  agree  upon  the  amount  to 
be  subscribed,  and  if  a  majority  of  the  commissioners  shall  rote 
for  the  proposition,  this  shall  be  entered  of  record,  which  shall 
show  the  amount  proposed   to  be  subscribed,  to  what  company, 

i  Con-t.    Amendment    1874,   art   »iii.        :;  Falconer  v.  Buffalo  &  Jamestown   li. 

§  n.  i;.  Co.  69  x.  v.  r.H. 

-  Laws  1869,  <■!,.  907;  i^7o,  <•!,*.  17::,  '  Const.  1868,  art.  vii.  §  7;  Const 
507,  789 ;    1-71,    <■!,-.  64,    146,    260,    288,     1  C.  7. 

i;.  i  isal    i  378,  ch.  99,   §§  66,  ''7,  69; 
.V  I  I    171,  §  I. 

287 


§  257.]  MUNICIPAL     BONDS   IN    AID   OF   RAILROADS. 

and  whether  in  bonds,  money,  or  other  property,  and  thereupon 
the  commissioners  shall  order  an  election,  to  be  held  on  a  notice 
of  not  less  than  thirty  days,  for  the  purpose  of  voting  for  or 
against  the  proposition  to  subscribe  the  amount  of  stock  agreed 
on  by  the  county  commissioners.  And  if  a  majority  of  the  qual- 
ified voters  of  the  county  shall  vote  in  favor  of  the  proposition, 
the  county  commissioners,  through  their  chairman,  shall  have 
power  to  subscribe  the  amount  of  stock  proposed  by  them,  and 
submitted  to  the  people,  subject  to  all  the  rules,  regulations,  and 
restrictions  of  other  stockholders  in  such  company  or  companies. 

In  case  the  county  shall  subscribe  the  amount  proposed  in 
bonds,  the  commissioners  shall  have  power  to  fix  the  rate  of  in- 
terest, not  to  exceed  the  rate  of  eight  per  cent.,  when  the  interest 
on  said  bonds  shall  be  payable,  and  at  what  place,  and  also  to  fix 
the  time  and  places  of  paying  the  interest,  and  to  determine  the 
mode  and  maimer  of  the  same  ;  and  also  shall  have  power  to  raise 
by  taxation,  from  year  to  year,  the  amount  necessary  to  meet  the 
interest  on  said  bonds. 

The  commissioners  are  authorized  to  make  the  subscription,  if 
a  majority  of  the  votes  cast  at  the  election  be  in  favor  of  such  sub- 
scription, although  a  majority  of  all  the  voters  of  the  town  did 
not  vote.1 

257.  Ohio.2 — The  credit  of  the  state  shall  not  in  any  man- 
ner be  given  or  loaned  to,  or  in  aid  of,  any  individual,  association, 
or  corporation  whatever  ;  nor  shall  the  state  ever  hereafter  be- 
come a  joint-owner  or  stockholder  in  any  company  or  association 
in  this  state  or  elsewhere,  formed  for  any  purpose  whatever.  The 
general  assembly  shall  never  authorize  any  county,  city,  town,  or 
township,  by  vote  of  its  citizens  or  otherwise,  to  become  a  stock- 
holder in  any  joint  stock  company,  corporation,  or  association 
whatever  ;  or  to  raise  money  for,  or  loan  its  credit  to,  or  in  aid 
of,  any  such  company,  corporation,  or  association. 

A  statute  which  attempts  to  do  indirectly  what  is  thus  pro- 
hibited, as  for  instance  to  authorize  municipalities  to  raise  money 
for  building  so  much  of  a  railroad  as  can  be  built  for  the  amount 
raised,  is  in  contravention  of  these  provisions  of  the  Constitution  ; 3 

1  Reiger  v.  Commissioners  of  the  Town         3  Taylor    v.    Commissioners    of    Ross 

of  Beaufort,  70  N.  C.  319.  County,  23  Ohio  St.  22,  in  relation  to  Act 

*  Const.  1851,  art.  viii.  §§  4,  6.  of  April  23,  1872. 
238 


PROVISIONS   RESPECTING   MUNICIPAL    AID.       [§§  258,  259. 

though  a  statute  authorizing  a  city  to  build  an  entire  railroad  as 
a  public  work  was  sustained.1 

It  was  competent  for  the  legislature,  under  the  Constitution  of 
1802,  to  construct  works  of  internal  improvement  on  behalf  of  the 
state,  or  to  aid  in  their  construction  by  subscribing  to  the  capital 
stock  of  corporations  created  for  that  purpose,  and  to  levy  taxes  to 
raise  the  means,  and  by  an  exercise  of  the  same  power  to  author- 
ize a  county  or  township  to  subscribe  to  a  work  of  that  character, 
running  through  or  into  such  county  or  township,  and  to  levy  a 
tax  to   pay  the  subscription.2 

258.  Oregon.3  —  The  state  shall  not  subscribe  to,  or  be  inter- 
ested in,  the  stock  of  any  company,  association,  or  corporation. 
No  county,  city,  town,  or  other  municipal  corporation,  by  vote  of 
its  citizens  or  otherwise,  shall  become  a  stockholder  in  any  joint 
stock  company,  corporation,  or  association  whatever,  or  raise 
money  for,  or  loan  its  credit  to,  or  in  aid  of  any  such  company, 
corporation,  or  association. 

259.  Pennsylvania.4  —  The  credit  of  the  commonwealth  shall 
not  be  pledged  or  loaned  to  any  individual,  company,  corporation, 
or  association,  nor  shall  the  commonwealth  become  a  joint-owner 
or  stockholder  in  any  company,  association,  or  corporation.  The 
general  assembly  shall  not  authorize  any  county,  city,  borough, 
township,  or  incorporated  district  to  become  a  stockholder  in  any 
company,  association,  or  corporation,  or  to  obtain  or  appropriate 
money  lor,  or  to  loan  its  credit  to,  any  corporation,  association, 
institution,  or  individual. 

It  hail  been  decided  in  1839  that  municipal  corporations  could 
not,  without  special  legislation  for  the  purpose,  levy  a  tax  in  aid 
of  railroad  companies.6  Subsequently  several  statutes  were  passed 
legalizing  anil  authorizing  the  granting  of  such  aid,1'  the  conse- 
quences "I'  which  were  so  disastrous  that  the  above  constitutional 

provision  was  adopted.7 

1   Walker    v.    City    of    Cincinnati,  21  *  Const.  1873,  art.  ix.  §§«'-."•    ' 

Ohio  Si.  l  i.  Dally  adopted  1857. 

-  Cincinnati,  Wilmington  &  Zanesville  •  Mt'Dermond  v.  Eenm  ht.  (Pa.) 
R.  R.  (',,.  r.  Clinton  County,  l  Ohio  St. 

77;  State  '-.  Tru  tees  of    Union  Town-  ,;  See  Act  27  March,  1848  j  Act  15  May, 

•hip,  8  Ohio  St,  1850. 

I                               ;  ;  6,  '.i.  7  Pennsylvania    R.   R.  '  '<>.   v.   City  of 

Phila.  it  Pa.  St.  i1-'.'. 

289 


§§  260-263.]       MUNICIPAL    BONDS   IN    AID    OF   RAILROADS. 

260.  Rhode  Island.1  —  The  Constitution  provides  that  without 
the  express  consent  of  the  people  the  legislature  shall  not  in  any 
case  pledge  the  faith  of  the  state  for  the  payment  of  the  obliga- 
tions of  others. 

261.  Tennessee.2  —  The  credit  of  no  county,  city,  or  town 
shall  be  given  or  loaned  to  or  in  aid  of  any  person,  company,  asso- 
ciation or  corporation,  except  upon  an  election  to  be  first  held  by 
the  qualified  voters  of  such  county,  city,  or  town,  and  the  assent 
of  three  fourths  of  the  votes  cast  at  said  election.  Nor  shall  any 
county,  city,  or  town  become  a  stockholder  with  others  in  any 
company,  association,  or  corporation,  except  upon  a  like  election 
and  the  assent  of  a  like  majority.3 

The  credit  of  the  state  shall  not  be  hereafter  loaned  or  given 
to  or  in  aid  of  any  person,  association,  company,  corporation,  or 
municipality,  nor  shall  the  state  become  a  stockholder  with  others 
in  any  association,  company,  corporation,  or  municipality. 

262.  Texas. —  The  legislature  shall  have  no  power  to  author- 
ize any  county,  city,  town,  or  other  political  corporation,  or  sub- 
division of  the  state,  to  lend  its  credit  or  to  grant  public  money 
or  thing  of  value,  in  aid  of  or  to  any  individual,  association,  or 
corporation  whatsoever  ;  or  to  become  a  stockholder  in  such  cor- 
poration, association,  or  company.4  No  county,  city,  or  other 
municipal  corporation  shall  hereafter  become  a  subscriber  to  the 
capital  of  any  private  corporation  or  association,  or  make  any  ap- 
propriation or  donation  to  the  same,  or  in  any  wise  loan  its  credit ; 
but  this  shall  not  be  construed  to  in  any  way  affect  any  obligation 
heretofore  undertaken  pursuant  to  law.5 

Statutes  authorizing  municipal  aid  under  the  former  Constitu- 
tion were  valid.6 

263.  Vermont.7  —  By  statute  any  town  or  city  in  this  state 

i  Const.  1S42,  art.  iv.  §  13.  to  any  person,  association,  or  corporation, 

2  Const.  1S70,  art.  ii.  §§  29,  31.  provided  that  this  exception  shall  not  be 

3  Certain   counties  are   excepted  from  enforced  beyond  the  year  1880. 
the  operation  of  this  provision,  so  far  that  4  Const.  1876,  art.  iii.  §  52. 
the  assent  of  a  majority  of  the  qualitied  5  Const.  1876,  art.  xi.  §  3. 
voters  of  either  of  said  counties  voting  on  6  Harcourt  v.  Good,  39  Tex.  455. 

the  question  shall  be  sufficient,  when  the         7  Laws  1872,  p.  75,  §§  1,   2,  4  ;  Laws 
credit  of  such  county  is  given  or  loaned     1874,  p.  45,  §  5. 
240 


PROVISIONS   RESPECTING   MUNICIPAL   AID.  [§  263. 

may  aid  in  the  construction  of  any  railroad  organized  under  the 
provisions  of  the  general  railroad  law,  by  issuing  bonds  to  aid 
such  railroad,  by  taking  capital  stock  therein,  or  in  such  other 
manner  as  such  town  or  city  shall  direct ;  provided,  that  no  town 
or  city  shall  assume  liability  for  any  such  road  exceeding  eight 
times  the  grand  list  of  such  town  or  city  at  the  time  such  aid  is 
granted. 

Such  aid  shall  be  given  in  the  following  manner.  The  select- 
men of  any  town,  and  the  mayor  of  any  city,  on  the  application 
of  ten  or  more  legal  voters  of  said  town  or  city,  shall,  within  ten 
days  after  the  receipt  of  said  application,  warn  a  meeting  of  legal 
voters  of  such  town  or  city  to  be  held  at  the  usual  places  of  hold- 
ing town  or  city  meetings  in  said  town  or  city,  which  notice  shall 
specify  the  time  and  place  of  the  meeting,  which  shall  not  be 
more  than  twenty  nor  less  than  twelve  days  from  the  time  of 
posting  such  notice  ;  and  the  warning  shall  be  sufficient  if  it 
states  the  business  to  be  done  at  said  meeting  is  to  aid  in  the  con- 
struction of  the  railroad  so  organized,  the  name  of  which  railroad 
shall  be  stated  in  such  warning ;  and  if  a  majority  of  the  votes 
given  at  said  meeting  shall  be  to  aid  said  road,  then  the  town  or 
city  shall  fix  the  amount  of  aid  to  be  given,  and  the  terms  thereof, 
and  may  appoint  three  commissioners,  who  shall  be  resident  tax- 
pavers  of  the  town  or  city,  and  if  no  commissioners  be  appointed, 
the  selectmen  of  such  town  and  aldermen  of  such  city  shall  act 
as  commissioners  until  commissioners  shall  be  appointed  by  said 
town  or  city.  Said  commissioners,  selectmen,  or  aldermen  shall 
be  duly  sworn,  and  shall  as  soon  as  may  be  prepare  suitable  books 
in  which  said  votes  shall  be  set  forth,  in  which  the  tax-payers  of 
said  town  or  city  may  sign  their  names,  assenting  to  said  vote, 
and  the  grand  list  of  each  person  signing  said  assent  shall  be  an- 
nexed to  his  name;  and  when  a  majority  of  the  tax-payers  of  said 
town  or  city,  both  in  number  and  amount  of  grand  list,  shall  have 
signed  the  same,  the  same  shall  he  binding  on  the  town  or  city: 
provided,  the  signatures  are  procured  within  one  year  after  the 

first  signature  to  the  paper  is  made;  and  all  persons  and  corpora- 
tions Liable  to  pay  taxes,  and  all  persons  who  shall  be  owners  of 
real  estate  taxed  ;it  the  time  the  assent  is  given,  shall  have  a  righi 
■  ■mi  to  »aid  v ''i'-. 
Such  town  or  city  maj  i  tie  bonds,  with  coupons  payable  semi- 
annually, at  any  rate  of  interest  not  exc ling  ^■\>'\\  per  cent.,  for 

w  241 


§  2G-1.]  MUNICIPAL    BONDS   IN   AID    OF   RAILROADS. 

the  purpose  of  aiding  such  road.  The  commissioners,  selectmen, 
or  aldermen  aforesaid,  as  soon  as  the  assent  is  given  and  recorded 
as  aforesaid,  shall  proceed  to  carry  into  effect  the  vote  of  said 
town  or  city,  according  to  the  terms  and  conditions  thereof,  and 
shall  have  power  to  vote  and  act  for  said  town  or  city  on  all 
proper  occasions  to  carry  into  effect  the  vote  aforesaid,  and  their 
votes  and  acts  shall  be  binding  on  said  town  or  city. 

264.  Virginia.1  —  The  credit  of  the  state  shall  not  be  granted 
to,  or  in  aid  of,  any  person,  association,  or  corporation.  The  state 
shall  not  subscribe  to,  or  become  interested  in,  the  stock  of  any 
company,  association,  or  corporation.  The  state  shall  not  be  a 
party  to,  or  become  interested  in,  any  work  of  internal  improve- 
ment, nor  engage  in  carrying  on  any  such  work,  otherwise  than  in 
the  expenditure  of  grants  to  the  state  of  land  or  other  property. 

By  statute,2  the  county  court  of  any  county,  or  the  common 
council,  or  board  of  trustees,  of  any  city  or  town,  or  township 
board  of  any  township,  in  this  commonwealth,  may  make  an  order 
requiring  the  sheriff  or  sergeant,  and  commissioners  of  election, 
at  the  next  general  election  for  state,  city,  town,  or  county,  or 
township  officers,  or  at  any  other  time,  not  less  than  thirty  days 
from  the  date  of  said  order,  which  shall  be  designated  therein, 
to  open  a  poll  and  take  the  sense  of  the  qualified  voters  on  the 
question,  whether  the  board  of  supervisors,  council,  or  board  of 
trustees,  or  township  board,  shall  subscribe  to  the  stock  of  any  in- 
ternal improvement  company,  named  in  the  order,  which  has  been 
incorporated  by  the  general  assembly.  The  said  order  shall  state 
the  maximum  amount  proposed  to  be  subscribed,  which  shall  in 
no  case  exceed  one  fifth  of  the  total  capital  stock  of  said  company, 
or  an  amount,  the  interest  upon  which,  at  the  rate  authorized  by 
the  council  or  board  of  trustees  of  any  city  or  town,  or  board  of 
supervisors  of  any  county,  or  township  board  of  any  township, 
shall  not  require  the  imposition  of  an  annual  tax  in  excess  of 
twenty  cents  on  the  one  hundred  dollars  ;  provided,  that  the 
bonds  issued  by  any  county,  city,  or  town,  or  township,  subscribed 

1  Const.  1870,  art.  x.  §§  12,  14,  15.  bonds  in  payment  of  subscriptions  to  the 

2  Code  1873,  ch.  61,  §  62.  By  statute  stock  of  any  company,  they  shall  levy  and 
of  March  25,  1875,  it  is  provided  that  collect  a  tax  for  a  sinking  fund,  sufficient, 
whenever  the  counties  of  Fairfax,  Lou-  in  connection  with  the  dividends  received 
doun,  Clark,  or  Frederick,  or  any  city  or  from  the  stock,  to  redeem  the  bonds  at 
town   within   these    counties,  shall   issue  maturity.     Acts  1874-5,  p.  261. 

242 


PROVISIONS   RESPECTING   MUNICIPAL  AID.  [§  265. 

to  any  internal  improvement  company,  shall  be  received  by  such 
company  at  their  par  value. 

265.  West  Virginia.1  —  The  credit  of  the  state  shall  not  be 
granted  to  or  in  aid  of  any  county,  city,  township,  corporation,  or 
person  ;  nor  shall  the  state  ever  assume  or  become  responsible  for 
the  debts  or  liabilities  of  any  county,  city,  town,  township,  corpo- 
ration, or  person  :  nor  shall  the  state  ever  hereafter  become  a  joint- 
owner  or  stockholder  in  any  company  or  association  in  this  state 
or  elsewhere,  formed  for  any  purpose  whatever. 

It  is  provided  by  statute  2  that  it  shall  be  lawful  for  the  county 
court,  or  other  court  or  tribunal  established  in  lieu  of  a  county 
court,  or  the  council  or  board  of  trustees  of  any  county,  city,  or 
town  through,  by,  or  near  to  which  the  railroad  company  shall 
have  been  incorporated  to  construct  a  railroad  and  branches,  and 
likely  to  be  benefited  thereby,  to  make  an  order  requiring  the 
sheriff  or  sergeant,  and  commissioners  of  election,  at  a  time  to  be 
designated  in  such  order,  not  less  than  one  month  from  the  date 
thereof,  to  open  polls  and  take  the  sense  of  the  legal  voters  of  such 
county  or  district  thereof,  city,  or  town,  on  the  question  whether 
such  county  or  district  thereof,  city,  or  town,  shall  subscribe  to  the 
stock  of  said  company  incorporated  to  construct  a  railroad  through, 
by,  or  neyr  such  county,  district,  city,  or  town,  and  by  the  con- 
struction of  which  such  county,  city,  or  town  is  likely  to  be  ben- 
efited. The  said  order  shall  state  the  amount  proposed  to  be 
subscribed,  and  in  case  such  order  be  made  by  the  county  court,  or 
other  court  or  tribunal  established  in  lieu  of  a  county  court  of 
any  such  county,  or  the  council  or  board  of  trustees  of  any  such 
city  or  town,  the  legal  voters  residing  in  any  district  of  a  county, 
city,  or  town  located  in  any  such  counties,  as  the  case  nia\  be, 
shall  be  entitled  to  vote  upon  the  question.  If  it  shall  appear 
that  three  fifths  of  the  votes  cast  at  such  election  are  in  favor 
of  the  subscription,  such  commissioners  of  elections  at  the  court- 
house, or  council,  or  board  of  trustees,  shall  forthwith  so  declare, 
and  when  so  declared,  it  shall  be  the  duty  of  the  countj  court,  or 
other  c, ml  or  tribunal  established  in  lieu  of  a  countj  courj  of 
the  county,  at  the  first  meeting  thereafter,  or  the  members  of  the 

1  Const.  I -:_',  art.  x.  §0.  works   of    internal    improvement  ;    Acta 

73,  ch.  88,  §§  27, 28.   See  prior     L863   p.  70,  §9;   Code  1870,  ch.  89,  §  10. 
act   authorizing    county   anbacriptiona  to 

243 


§  2G6.]  MUNICIPAL    BONDS    IN    AID    OF    RAILROADS. 

council  or  board  of  trustees  of  any  city  or  town,  to  meet  on  the 
fifth  day  thereafter  (Sunday  excepted),  to  carry  out  the  wishes 
of  said  voters.  The  said  subscription  shall  be  paid  in  cash,  or  in 
the  coupon  bonds  of  said  county,  district,  city,  or  town,  at  par  ; 
the  said  bonds  to  be  redeemed  within  thirty-four  years,  as  such 
county  court,  or  other  tribunal  established  in  lieu  of  a  county 
court,  councilmen,  or  trustee  of  any  city  or  town  may  elect,  and 
shall  bear  interest,  and  the  matured  coupons  shall  be  received  by 
the  authorities  of  such  county,  city,  or  town,  at  par,  in  payment 
of  all  taxes,  fines,  and  other  like  obligations  :  provided,  that  no 
county,  district,  city,  or  town  within  this  state  shall  hereafter  be 
allowed  to  become  indebted  in  any  manner,  or  for  any  purpose, 
to  an  amount,  including  existing  indebtedness,  in  the  aggregate, 
exceeding  five  per  centum  on  the  value  of  the  taxable  property 
therein,  to  be  ascertained  by  the  last  assessment  for  state  and 
count}''  taxes,  previous  to  the  incurring  of  such  indebtedness  ;  nor 
without  at  the  same  time  providing  for  the  collection  of  a  direct 
annual  tax,  sufficient  to  pay,  annually,  the  interest  on  such  debt, 
and  the  principal  thereof,  within  and  not  exceeding  thirty-four 
years.  But  no  debt  shall  be  contracted  under  these  provisions, 
unless  all  questions  connected  with  the  same  shall  have  been  first 
submitted  to  a  vote  of  the  people,  and  have  received  three  fifths 
of  all  the  votes  cast  for  and  against  the  same. 

266.  Wisconsin.  — The  Supreme  Court  of  the  state  has  held 
that  municipal  corporations  have  no  power  under  legislative  sanc- 
tion to  make  donations  of  money,  in  aid  of  a  railroad  and  to  levy 
a  tax  to  pay  for  the  same  ; :  but  that  they  are  liable  upon  bonds 
issued  in  payment  of  subscriptions  to  the  capital  stock  of  a  rail- 
road company.2  The  Constitution  of  the  state  makes  it  the  duty 
of  the  legislature,  in  providing  for  the  organization  of  cities  and 
incorporated  villages,  to  restrict  their  power  of  loaning  their  credit, 
so  as  to  prevent  abuses  ;  and  consequently  recognizes  their  power, 
under  some  circumstances  and  for  some  purposes,  to  loan  their 
credit.3  But  the  various  statutes  on  the  subject,  taken  together, 
clearly  establish  a  public  policy  to  encourage  municipalities  to  aid 

1  Whiting  v.  Sheboygan  &  Fond  du  v.  Wisconsin  Cent.  R.  R.  Co.  121  Mass. 
Lac  R.  R.  Co.  25  Wis.  167.  460. 

2  Phillips  v.  Town  of  Albany,  28  Wis.  3  Rogan  v.  City  of  Watertown,  30  Wis. 
340;    Supervisors  of  County  of   Portage  259. 

244 


CONDITIONS   PRECEDENT    TO    GRANTING   MUNICIPAL   AID.       [§  267. 

in  the  construction  of  railroads.1  The  right  to  subscribe  stock  in 
aid  of  railroad  companies  has  frequently  been  conferred  upon 
counties  and  towns  in  favor  of  particular  railroad  companies.2 

The  present  general  statute  authorizing  municipal  corporations 
to  aid  in  the  construction  of  railroads  is  that  enacted  in  1872  as 
amended  in  several  subsequent  statutes.3  Any  county,  town,  incor- 
porated city,  or  incorporated  village  is  authorized  to  grant  such 
aid  by  subscribing  to  the  stock  of  any  railroad  company  which 
will  promote  the  general  prosperity  and  welfare  of  its  tax-payers. 
The  corporation  and  the  railroad  company  may  agree  upon  the 
terms  upon  which  such  aid  shall  be  granted.  Prior  to  the  amend- 
ment of  1875,4  the  municipality  was  authorized  to  issue  bonds  to 
the  railroad  company  to  an  amount  not  exceeding,  with  its  exist- 
ing indebtedness,  ten  per  centum  of  its  valuation  ;  but  by  that 
amendment  it  was  enacted  that  the  agreement  of  the  parties 
should  provide  that  the  aid  should  consist  in  a  tax,  not  exceeding 
in  amount  five  per  centum  of  the  taxable  property.  In  case  such 
agreement  is  made  an  election  is  held,  and  if  a  majority  of  the 
legal  voters  who  vote  at  such  election  shall  vote  for  the  railroad 
proposition,  a  tax  to  the  amount  of  aid  so  voted  shall  be  entered 
upon  the  next  assessment  roll,  and  collected  and  paid  over  to 
the  company.  The  company  is  empowered  to  purchase  at  any 
tax  sale  had  for  the  collection  of  such  tax;  it  being  the  intent  of 
the  act  that  the  company  shall  be  entitled  to  the  proceeds  of  such 
tax  voted  and  assessed,  whether  in  money  collected  or  certificates 
of  sale,  to  the  amount  of  the  bid  so  voted. 

III.    Conditions  precedent  to  granting  Municipal  Aid. 

267.  Effect  of  non-compliance  with  conditions  respecting 
the  issue  of  bonds. — When  special  authority  is  conferred  upon 
a  municipal  corporation  to  aid  a  private  company  by  the  issue  of 
its  bonds,  the  legislature  may  properly  direct  the  mode  in  which 

1  Town  of  Platteville  y.  Galena  S  South-  agreement  and  the  holding  of  theelection. 

era  Wis.  R.  R.  Co.  43  Wis.  493,  503.  See  Bound  v.  Wisconsin  Cent.  R.  R.  Co. 

for  instance  statutes  of  March.9,  Sup.  Ct.  of  Wis.,  1878,  6  Reporter,  704. 

1869;  March  1,  1871.  *  Laws    1875,   ch.    168.     Aid    may    be 

'■'■  Laws  L872,  ch.  182,  amended;  Laws  given  to  extend  road  or  to  build  branches. 

1874   ch.  .".it  ;  Laws    1876,  vol.  i.  ch.  66  ;    or  in  aid  of 

LawB  1876,  vol.  i.  ch.  128       PI        statutes  narrow-gauge     railroads.      Laws     1876, 

provide  al  length  for  the  making  of  tlic  vol.  i.  ch.  29. 

■J!.". 


§  268.]  MUNICIPAL   BONDS   IN    AID   OF   RAILROADS. 

this  power  shall  be  exercised,  and  may  constitute  such  agents  as 
it  may  choose  to  carry  out  the  power  so  granted,  although  such 
agents  be  not  officers  of  the  municipality  or  persons  chosen  by  it.1 
Although  irregularity,  or  even  fraud,  in  the  issue  of  such  bonds 
will  not  invalidate  the  bonds  in  the  hands  of  a  bond  fide  holder, 
but  only  in  the  hands  of  those  who  have  notice  of  the  irregularity 
or  fraud,  yet  upon  a  proper  application  the  issue  of  the  bonds  may 
be  enjoined,  when  the  statute  authorizing  their  issue  has  not  been 
complied  with  in  matters  of  substance.  Thus  an  injunction  was 
issued  to  restrain  the  issue  of  bonds  authorized  by  a  statute  of  the 
State  of  Nebraska,  which  required  the  bonds  to  be  paid  in  ten 
years,  whereas  a  county  had  voted  to  issue  the  bonds  to  run  twenty 
years.2 

But  a  statutory  provision  that  bonds  shall  not  run  more  than 
thirty  years  from  the  date  thereof  is  directory,  and  not  of  the 
essence  of  the  power  to  issue.  Bonds  dated  September  10,  pay- 
able thirty  years  from  October  15  in  the  same  year,  are  of  the 
same  legal  effect  as  if  they  had  been  dated  of  the  latter  date,  and 
are  not  invalid  as  contravening  the  statute.8 

Under  a  statute  authorizing  municipal  subscriptions  and  bonds 
in  aid  of  railroads  upon  conditions,  and  providing  that  these  "shall 
not  be  valid  and  binding  until  such  conditions  precedent  have  been 
complied  with,"  it  is  not  essential  to  the  validity  of  the  subscrip- 
tion or  of  the  bonds  that  the  conditions  annexed  shall  have  been 
first  performed,  if  they  are  performed  after  the  making  of  the  sub- 
scription or  even  after  the  issue  of  the  bonds.4 

268.  The  validity  of  the  subscription  in  aid  of  the  railroad 
as  between  the  immediate  parties  depends  upon  the  result 
and  validity  of  the  election  held  to  authorize  the  subscription. 
A  Court  of  Chancery,  upon  a  bill  filed  by  a  tax-payer,  may  in- 
vestigate a  vote  of  a  municipal  corporation  to  issue  bonds  in  aid  of 
a  railroad.  Under  a  statute  authorizing  such  issue  upon  the  vote 
of  a  majority  of  the  legal  voters,  the  contract  of  subscription  is 
not  binding  in  favor  of  the  railroad  company  except  as  authorized 

1  Sheboygan  County  v.  Parker,  3  Wall.  359 ;  Cairo  &  St.  Louis  E.  E.  Co.  v.  City 
93.  of  Sparta,  77  111.  505. 

2  Union  Pacific  E.  E.  Co.  v.  Lincoln  3  Township  of  Eock  Creek  v.  Strong, 
County,  3  Dill.  300;  and  see  Union  Pa-  96  U.  S.  271. 

cific  E*.  E.  Co.  v.  Merrick  County,  3  Dill.         4  Town  of  Eagle  v.  Kohn,  84  111.  292. 
216 


CONDITIONS    PRECEDENT    TO    GRANTING   MUNICIPAL   AID.       [§  269. 

by  law,  and  entered  into  in  pursuance  of  all  the  essential  require- 
ments of  the  statute.1  If,  upon  inquiry,  the  subscription  proves 
not  to  have  been  duly  authorized,  the  court  may  enjoin  the  issu- 
ing of  the  bonds  ; 2  or  if  the  bonds  have  already  been  issued,  it 
may  declare  them  void,  and  order  their  cancellation  so  far  as  the 
railroad  is  concerned,  though  the  title  of  bond  fide  purchasers  of 
the  bonds  for  value  may  not  be  affected.3 

Formalities  imposed  by  the  legislature  upon  municipal  corpora- 
tions as  conditions  precedent  to  the  exercise  of  a  power  of  borrow- 
ing which  rests  wholly  upon  legislative  authority  are  regarded  as 
imperative  as  between  the  immediate  parties.4  Such  for  instance 
is  a  requirement  that  the  assent  of  the  voters  of  a  town  or  county 
to  the  issuing  of  bonds  in  aid  of  a  railroad  or  other  private  corpo- 
ration shall  first  be  obtained.5  Bonds  issued  without  such  assent 
have  been  held  in  exceptional  cases  void,  even  in  the  hands  of  bond 
fide  holders.6  In  like  manner  a  condition  imposed  by  the  vote  of 
a  township  in  favor  of  a  subscription  in  aid  of  a  railroad,  that 
the  bonds  shall  be  issued  only  when  work  equal  in  value  to  the 
amount  of  the  bonds  shall  be  done  in  the  township,  is  imperative, 
and  is  not  fulfilled  by  doing  work  elsewhere,  even  with  the  con- 
sent of  the  officers  of  the  township.  Moreover,  a  condition  once 
imposed  by  a  vote  cannot  be  changed  by  a  subsequent  election 
unless  the  first  election  was  void.  The  power  conferred  upon  the 
township  to  vote  such  aid  is  exhausted  when  once  acted  upon, 
unless  authority  be  given  it  by  statute  to  act  again." 

269.  Meaning  of  two  thirds  of  qualified  voters.  —  A  pro- 
vision of  the  former  Constitution  of  Missouri  that  "the  general 

1  Chambers  County  v.  Clews,  21  Wall.  4  Essex  County   R.  R.  Co.  w.  Town  of 

317,  .'J2l  ;  Winston  v.  Tenn.  &  Pacific  R.  Lunenburgh,  49  Vt.  143;  McCoy v.Briant, 

57  Tenn.   60;  15  Am.  Railw.  R.  1 1  Chicago  Leg.  N.  84. 

237;  Louisville  &  Nashville  R.  R.  Co.  v.  &  Leavenworth  &  DesMoines  R.  R.  Co. 

County    Court    of    Davidson,    i    Sneed  v.  County  Court  of  Platte  County,  42  Mo. 

(Tenn.),  637,  640.  171. 

i  preceding  note,  and    Union  G  City  v.  Lamson,  9  Wall.  477  ;  Steines 

Pacific  R.R.  Co.  w.  Lincoln  County,  3  Dill,  v.  Franklin  County,  48  Mo.  167;  S  Am. 

800;  Same  v.  Merrick, lb.  859 ;  Portland  K.  s7. 

tral   R.  R.  Co.  v.  Eartford,  7  Illinois  Midland  R.  R.  Co.  v.  Wayne* 

rdi>.  Jeffei  on  County,  ville,  Sup.  Ct.  of  HI.  6  Reporter,  457 ;  £ 

,-.  ( lounty   <  '"Hi  t  of  Davi        I  iountj .  6  I 

B     •      I    un'i    of]  oi     ;  '<«■  County,  76  Mo.  80. 
N.  C.  489 ;  '  !he  ter  &  Li  noir  R.  K.  Co.  v. 
Caldwell  County,  72  N.  C.  4(  6. 

■JIT 


§  270.]  MUNICIPAL    BONDS   IN   AID    OF   RAILROADS. 

assembly  shall  not  authorize  any  county,  city,  or  town,  to  become 
a  stockholder  in,  or  to  loan  its  credit  to,  any  county,  association, 
or  corporation,  unless  two  thirds  of  the  qualified  voters  of  such 
county,  city,  or  town,  at  a  regular  or  special  election  to  be  held 
therein,  shall  assent  thereto,"  was  construed  to  authorize  a  law 
allowing  such  subscription  when  it  appears  "  that  not  less  than 
two  thirds  of  the  qualified  voters  of  the  township  voting  at  such 
election  are  in  favor  of  such  subscription."  All  qualified  voters 
who  absent  themselves  from  an  election  duly  called  are  presumed 
to  assent  to  the  expressed  will  of  the  majority  of  those  voting, 
unless  the  law  providing  for  the  election  otherwise  declares.  Any 
other  rule  would  be  productive  of  the  greatest  inconvenience,  and 
ought  not  to  be  adopted,  unless  the  legislative  will  to  that  effect 
be  clearly  expressed.1  Although  the  Supreme  Court  of  the  state 
subsequently  pronounced  this  act  unconstitutional,2  the  federal 
courts  declined  to  follow  that  decision,  on  the  ground  that  they 
are  not  bound  by  decisions  of  local  courts  invalidating  negotiable 
commercial  securities  negotiated  before  there  was  any  decision 
invalidating  them.3 

270.  Generally  the  effect  of  a  popular  vote,  had  in  pursu- 
ance of  legislative  authority  to  issue  bonds  in  aid  of  a  railroad 
company,  is  simply  to  empower  its  proper  agents  to  act  in  the 
matter,  and  to  bind  the  municipality  by  a  formal  subscription.4 
The  vote  alone  does  not  generally  constitute  a  subscription,  or  a 
contract  to  subscribe,  or  preclude  the  repeal  of  the  authority  to 
subscribe.5 

1  County  of  Cass  v.  Johnston,  95  U.  S.  County,  U.  S.  C.  C.  for  Mo.  7  Cent.  L.  J. 
360,  overruling  Harshmanr.  Bates  County,  353.  See  articles  on  Township  Bonds  of 
92  U.  S.  569,  so  far  as  in  conflict.  See,  Missouri,  and  the  decisions  of  the  U.  S. 
also,  State  v.  Renick,  Mayor  of  City  of  St.  Supreme  Court,  5  Cent.  L.  J.  499,  518. 
Joseph,  37  Mo.  270;  State  v.  Binder,  38  4  People  v.  Batchellor,  53  N.  Y.  128; 
Mo.  450  ;  St.  Joseph  Township  v.  Rogers,  Town  of  Duanesburgh  v.  Jenkins,  57  lb. 
16  Wall.  644  ;  Louisville  &  Nashville  R.  177,  192;  People  v.  County  of  Tazewell, 
R.  Co.  v.  County  Court  of  Davidson,  1  22  111.147;  Union  Pacific  Ry.  Co.  v.  Com. 
Sneed  (Tenn.),  638;  People  v.  Wiant,  48  of  Davis  County,  6  Kans.  256  ;  Crawford 
111.  263;  People  v.  Garner,  47  111.  246;  County  v.  Louisville,  New  Albany  &  St. 
Taylor  v.  Taylor,  10   Minn.  107  ;  Melvin  Louis  Air  Line  Ry.  Co.  39  Ind.  192. 

v.  Lisenby,  5  Cent.  L.  J.  15.    See  §  249.  5  Aspinwall  v.  County  of  Daviess,  22 

2  State  v.  Brassfield,  referred  to  in  Foote  How.  364;  Harshman  v.  Bates  County,  3 
v.  Johnson  County,  infra.  Dill.  150;  affirmed,  92  U.  S.  569;  Union 

3  Foote  v.  Johnson  County,  6  Cent.  L.  Pacific  Ry.  Co.  v.  Davis  County,  6  Kans. 
J.  34  5;  Westermann  v.  Cape    Girardeau  256. 

248 


CONDITIONS    PRECEDENT   TO   GRANTING    MUNICIPAL   AID.      [§§  271,  272. 

271.  But  an  actual  subscription  on  the  books  of  the  com- 
pany, or  one  made  in  any  formal  manner,  is  unnecessary  when 
the  law  authorizing  the  subscription  provides  that  the  vote  of  the 
municipality  in  favor  of  a  subscription  shall  be  deemed  to  be  a 
taking  of  the  stock  of  the  company.  The  statute  in  such  case 
makes  the  vote  an  equivalent  to  a  subscription,  and  a  substitute 
for  it.1  Even  without  any  such  statute,  a  resolution  of  a  board  of 
supervisors  having  authority  to  make  a  subscription,  ordering  a 
subscription  to  be  made,  when  recorded  and  afterwards  acted 
upon  is  a  binding  contract  of  subscription.  The  resolution  to  sub- 
scribe is  an  immediate  subscription.2  In  like  manner,  an  order  of 
a  county  court  subscribing  on  behalf  of  the  county  for  stock  of  a 
turnpike  company,  was  regarded  not  as  a  mere  pledge  or  oiler  to 
subscribe,  but  an  actual  taking  or  subscribing  for  the  stock.8 

272.  A  municipal  subscription  in  favor  of  a  railroad  com- 
pany may  be  released  by  a  subsequent  alteration  of  the  organ- 
ization or  purposes  of  the  company,  if  the  alteration  be  a  funda- 
mental one,  not  contemplated  either  by  the  charter  of  the  company 
or  by  the  general  statutes  of  the  state.4  But  if  a  subscription  be 
made  to  a  company  which  is  at  the  time  authorized  to  consolidate 
with  other  companies,  and  accordingly  a  consolidation  is  after- 
wards effected  with  a  company  having  a  connecting  line,  a  delivery 
of  the  bonds  to  the  new  company  in  payment  of  the  original  sub- 
scription is  warranted,  or  may  be  compelled.5 

But  where  the  power  to  make  a  subscription  depended  upon  a 
precedent  vote  which  was  made  in  favor  of  a  certain  corporation, 

i  Town  of  Bast  Lincoln  v.  Davenport,  4  Countyof  Bates  v.  Winters, U.  S.  Sup. 

94   U.  S     301 ;  Nugent  v.  Supervisors  of  Cfc.  1878, 17  Albany  L.  J.  291. 

Putnam  County,  19  Wall.  241  ;  Countyof  5  Town  of  East    Lincoln  v.  Davenport, 

kingham  Ten  Cent  Savings  94  U.  S.  801;  Nugent  v.  Supervisors  of 

Bank,  92  I     -  631  ;  Town  of  Concord  i».  Putnam  County,  19    Wall.  241  :  County 

Portsmouth  Savings  Bank,  92  U.  S.  625.  of  Callaway   v.    Foster,  93    I'.   S. 

inty  of   Moultrie  v.   Rockingham  County  of  Scotland  v.  Thomas,  94  U.S. 

Bank,  92   I  .8.  631  ;  682;  S.  ' '.  3  Dill.  7  j  Countyof  Benry  v. 

\\  .   ■      |  -   ,         i  un.l   Soc.  of  Phila.  v.  Nicolay,  95    U.   S.  619;    Philadelphia  & 

Philadelphia,  31  Pa.  St.  175;  City  Wilmington    R.   R.   Co.  v.   Maryland,    l<> 

imento  v.  Kirk,  7  Cal.  419.  How.  376;  Tomlinson  v.  Branch,  15  Wall, 

of  <  larke  County  Court  v.  160;  <  itj  of  Mount  Vernon  v   Ho 

Paria,     Winchi      i          Kentucky    River  [nd.  563 ;  Stati       Qi  en<  County,  54  Mo. 

Turnpike  Co.  11  B.  Mon.  (Ky.)  143.    See,  540;  Lewis  v.  Cit)  of  Clarendon,  I     S.  C 

however,   Wilson   v.  Qarroutte,  Sup.  ct.  C.  April  T.  1878,  6  Reporter,  609. 
Mo.  April  T.  1878,  7  Cent.  L.  J.  2'.'. 

249 


§  272.]  MUNICIPAL   BONDS   IN   AID   OF   RAILROADS. 

and  under  a  general  law  of  the  state  this  company  was  soon  after- 
wards consolidated  with  another  company,  and  the  subscription 
by  the  county  court  was  made  in  favor  of  the  consolidated  com- 
pany without  any  new  election,  it  was  held  that  the  subscription 
was  unauthorized,  and  the  bonds  issued  in  payment  of  it  void, 
even  in  the  hands  of  a  bond  fide  holder.1  The  authority  given  to 
the  county  court  by  the  electors  to  make  the  subscription  was 
regarded  as  revoked  when  the  company  in  whose  favor  the  vote 
was  had  ceased  to  exist,  by  being  absorbed  in  another  company 
by  consolidation.  The  county  court  was  regarded  as  the  mere 
agent  of  the  township,  having  no  discretion  to  act  beyond  the 
precise  terms  of  the  power  given.  The  authority  to  make  the 
subscription  ceased  with  the  extinction  of  the  company  in  whose 
favor  the  vote  was  had. 

In  the  case  of  Nugent  v.  Supervisors2  the  subscription  was  made 
before  the  consolidation,  whereas  in  the  foregoing  case  there  was 
only  a  bare  vote  before  the  consolidation,  and  the  subscription  was 
made  in  favor  of  the  consolidated  company. 

Moreover,  the  authority  given  a  county  to  subscribe  for  the  stock 
of  a  railroad  company,  and  the  subscription  when  made,  passes  as 
a  right  and  privilege  of  the  company  to  a  new  company  formed  by 
the  consolidation  of  the  company  to  which  the  subscription  was 
made  with  another.3  A  subscription  made  to  a  specified  com- 
pany, which  has  at  the  time  power  to  consolidate  with  another 
company,  may  well  be  regarded  as  made  in  full  view  of  the  fact 
that  the  consolidation  may  occur  without  invalidating  the  sub- 
•  scription.  If  a  prior  vote  be  required  to  authorize  the  subscrip- 
tion, a  vote  in  favor  of  one  constituent  company  then  having 
the  power  to  unite  with  another  company  may  well  be  regarded 
as  authorizing  a  subscription  in  favor  of  the  consolidated  company.4 
At  any  rate,  where  a  county  court,  or  certain  officers  of  a  munic- 

i  Harshman  v.  Bates  County,  92  U.  S.  Branch,    15  Wall.    460  ;    Philadelphia   & 

569  ;  3  Dill.  150.     Such  existing  legisla-  Wilmington   R.  R.  Co.  v.  Maryland,  10 

tive  authority  to  change  the  organization  How.  376 ;  Smith  v.  County  of  Clark,  54 

of    the   company  distinguishes  this   case  Mo.  58 ;  Hannibal  &  St.  Jo.  R.  R.  Co.  v. 

from  Marsh  v.  Fulton  County,  10  Wall.  Marion  County,  36  Mo.  294  ;  Stater.  Sul- 

676.     See,  also,  Wilson  v.  Garroutte,  Sup.  livan  County,  57  Mo.  522 ;  State  v.  Greene 

Ct.  Mo.  April  T.  1878,  7  Cent.  L.  J.  29.  County,  54  Mo.  540;  Hanna  v.  Cincinnati 

2  19  Wall.  241.  &  Fort  Wayne  R.  R.  Co.  20  Ind.  30. 

3  County  of  Scotland  v.  Thomas,  94  U-  4  Washburn  v.  Cass  County,  3  Dill. 
S.  682;  3  Dill.  7;  Branch  v.  City  of  251.  And  see  First  Nat.  Bank  of  St. 
Charleston,  92  U.   S.  677;  Tomlinson  v.  Johnsbury  v.  Town  of  Concord,  50  Vt.  257. 

250 


CONDITIONS   PRECEDENT    TO    GRANTING   MUNICIPAL   AID.       [§  273. 

ipality,  have  the  power  to  subscribe  for  the  stock  of  a  particular 
company  without  a  vote  of  the  people,  inasmuch  as  the  authority 
to  issue  the  bonds  is  complete  without  a  subscription,  the  bonds 
may  be  delivered  to  a  company  formed  by  the  consolidation  of  the 
specified  company  with  another.1 

273.  The  prior  location  of  a  railroad  may  be  or  may  not 
be  a  condition  precedent  to  submitting  the  question  of  a  sub- 
scription in  aid  of  it  to  a  vote  of  the  electors  of  a  municipality. - 
This  depends  upon  the  terms  of  the  statute.  When  a  previous 
location  is  not  required,  it  is  not  necessary  to  insert  the  name  of 
the  company  to  be  aided  in  the  proposition  submitted  to  the  pop- 
ular vote,  but  it  is  sufficient  to  describe  the  contemplated  route  in 
general  terms.3  In  like  manner,  whether  the  prior  incorporation 
of  the  railroad  company  to  which  aid  is  subscribed  is  requisite  to 
the  validity  of  the  subscription,  and  to  the  bonds  issued  in  pay- 
ment of  the  subscription,  and  not  held  by  bond  fide  purchasers 
without  notice,  may  depend  upon  the  terms  of  the  statute.4  Under 
a  statute  of  the  State  of  Missouri,  the  Supreme  Court  of  that  state 
held  that  township  subscriptions  could  not  be  used  to  bring  the 
company  into  existence.5  It  is  also  competent  for  a  municipal 
corporation  to  make  its  subscription  upon  condition  that  the  road 
shall  be  completed  within  a  certain  time,  or  upon  such  other  con- 
dition as  may  be  considered  necessary  or  desirable  to  insure  the 
corporation  against  loss,  and  as  between  the  parties  such  condition 
will  be  enforced.0  A  railroad  company  does  not  forfeit  its  right  to 
aid  -ranted  on  condition  of  constructing  a  certain  number  of  miles 
of  road  by  the  Eacl  that  it  pur. -liases  and  adopts  as  a  part  of  its 
line  a  section  of  a  railroad  already  constructed  on  a  portion  of  the 

*  Thomas  v.  County  of  Scotland,  3  Dil-  R.  K.  Co.  v.  Miami  County,  12  Kans.  234, 

lor))  ;.  are  aol  authorities  on  tliis  point. 

-  Commissioners  of  Johnson  County  v.  4  County  of  Cass  v.  Johnston,  95  I    8. 

Thayer,  94   (J.  S.  631 ;  County  of  Cass  v.  -'SCO. 

Jordan,   95   U.  8.373;  in  r<   Stratford  &  5  Rubey  v.  Shain,  54 Mo 

Huron   Ry.Co.  38  Q.   B.  Upper  Canada,  '•  Falconer  v.  Buffalo  &  Jamestown  R.  R. 

I  [2,  Co.  69  N.  V.  191  ;  Portland  &  Oxford  <  lent. 

mmis  ioners  or  Johnson  County  v.  R.  R.Co.  v.  Hartford,  58  Me.         P 

Thayer,  supra;   County  of   Callaway   v.  v.  Jefferson  County,  2  Colo.  338 ;  Califor- 

|           93U.S.567.     The  cases  of  Lewis  nia  Northern  R.  R.  Co   v   Butte  County, 

p.  Commissioners  of    Bourbon  County,  12  18  Oal.  671 ;  Hodgman  v.  C 

Kans    186;  Mo.  River,   Ft.                  ulf  Paul Ry.  Co.  20  Minn.  18;  23  lb,  153. 

25] 


§  274.]  MUNICIPAL    BONDS    IN    AID   OF   RAILROADS. 

route  on  which  the  proposed  railroad  was  to  be  built.1  Assurances 
in  writing  by  the  officers  of  a  railway  company,  that  if  a  town 
would  vote  in  favor  of  a  subscription  to  its  capital  stock  the  com- 
pany would  not  call  for  the  bonds  until  satisfactory  assurance 
should  be  given  of  the  completion  of  the  road,  cannot  be  regarded 
as  a  fraud  operating  to  induce  an  affirmative  vote.2  When  it 
appears  that  the  stipulation  as  to  the  time  within  which  the  road 
should  be  completed  was  not  of  the  essence  of  the  contract,  and 
the  benefits  sought  to  be  derived  from  the  road  have  actually  been 
received  by  the  municipality  subscribing,  it  will  not  be  released 
from  paying  the  subscription.3 

There  may  also  be  a  condition  that  the  road  shall  be  built  in 
a  certain  place ;  and  a  breach  of  this  would  forfeit  the  right  of 
the  company  to  demand  the  aid  granted  upon  such  condition;4 
but  after  the  bonds  have  been  issued  and  sold  in  the  market,  no 
objection  to  the  validity  of  the  bonds  can  be  sustained  on  the 
ground  of  a  breach  of  such  condition.5  Damages  may,  however, 
be  recovered  by  the  municipality  for  a  breach  of  such  condition.6 

After  a  municipality  has  subscribed  for  the  stock  of  a  railroad 
company,  and  issued  its  bonds  in  aid  of  its  proposed  main  line,  it 
may  restrain  the  company  from  wasting  its  means  in  constructing 
branch  roads  when  such  use  of  its  funds  might  result  in  disabling 
it  from  building  its  main  line." 

A  divergence  in  part  from  the  proposed  line  of  road  may  be  au- 
thorized by  a  municipality  after  it  has  voted  to  grant  aid.8 

274.  A  charter  of  a  corporation  authorizing  a  municipal 
subscription,  being  a  contract  between  the  state  granting  it 
and  the  company  receiving  it,  rights  and  privileges  conferred  by 
the  charter,  cannot  be  taken  away  without  the  company's  con- 
sent, either  by  legislation  or  by  constitutional  provision.     Thus  a 

1  Stockton  &  Visalia  R.  R.  Co.  v.  City  see  Stockton  &  Visalia  R.  R.  Co  v.  City 
of  Stockton,  51  Cal.  328.  of  Stockton,  51  Cal.  328.  See  Supervisors 

2  Hensley  Township  v.  People,  84  111.  of  County  of  Portage  v.  Wisconsin  Cent. 
544.                                                .  R.  R,  Co.  121  Mass.  460. 

3  Kansas   City   &  Council  Bluffs  R.  R.  5  Munson  v.  Town  of  Lyons,  539. 

Co.  v.  Alderman,  47   Mo.  349.    See,  also,  G  Missouri,  Kansas  &  Texas  Ry.  Co.  v. 

Supervisors  of  County  of  Portage  v.  Wis-  City  of  Fort  Scott,  15  Kans.  435. 

cousin  Cent.  R.  R.  Co.  121  Mass.  460.  1  Town  of  Platteville  v.  Galena  &  South- 

4  Virginia  &  Truckee  R.  R.  Co.  v.  Lyons  ern  Wis.  R.  R.  Co.  43  Wis.  493. 
County,  6  Nev.  68,  71  ;  State  v.  County  8  Coleman  v.  Board  of  Supervisors,  50 
Court  of  Daviess  County,  64  Mo.  30  ;  and  Cal.  493. 

252 


CONDITIONS    PRECEDENT    TO    GRANTING   MUNICIPAL   AID.       [§  275. 

charter  of  a  railroad  company,  conferring  upon  it  the  right  to 
receive  subscriptions  to  its  stock  from  an}7  county  in  which  any 
part  of  its  route  might  be,  without  a  vote  of  the  county  in  favor 
of  it,  is  held  not  to  be  affected  by  a  subsequent  constitutional  pro- 
vision prohibiting  subscriptions  to  the  stock  of  any  corporation  by 
counties,  cities,  or  towns,  unless  two  thirds  of  the  qualified  voters 
thereof  shall  assent  thereto.  A  subscription  authorized  by  the 
charter  may  be  made  after  the  adoption  of  such  a  constitutional 
provision,  and  the  bonds  issued  in  pursuance  of  it  will  be  valid. 
The  provision  is  construed  to  be  prospective,  and  not  retroactive 
with  respect  to  legislative  grants  of  authority.1 

A  subscription  to  the  stock  of  one  railroad  company  may  be 
transferred  to  another  company,  with  the  assent  of  the  county  or 
municipality  making  the  subscription,  and  such  subscription  there- 
upon becomes  a  vested  right  which  a  subsequent  change  in  the 
Constitution  of  the  state  will  not  defeat  or  impair.2 

A  statute  authorizing  a  municipal  corporation  to  loan  its  credit 
to  a  railroad  company  specified,  and  to  "  any  other  company  duly 
incorporated  and  organized  for  the  purpose  of  constructing  rail- 
roads," leading  in  the  same  direction,  authorizes  aid  to  a  company 
afterwards  incorporated  and  organized.3 

275.  But  the  power  to  subscribe  may  be  annulled  by  con- 
stitutional provision,  or  by  statute,  at  any  time  before  the  sub- 
scription or  the  right  to  subscribe  has  become  a  vested  right  of 
the  parties.4  Bya  statute  of  the  State  of  Illinois,  enacted  in  1867, 
towns  were  authorized  to  make  appropriations  or  donations  in  aid 
of  the  construction  of  a  railroad,  to  be  paid  as  soon  as  its  tracks 
should   have   been  located  ami    constructed   through   such    town. 

1  County  of  Kay  /•.  Vansyclc,  96  U.  S.  State  v.  Greene  County,  .">)  Mo.  540 

or.".;  County  of  Henry  v.  Nicolay,  95  II.  also,  Stater.  Saline  County,  51   Mo.  350. 

S.  619;  County  of  Scotland   v.  Thomas,  Not  in   harmony  with  the  foregoing:  Jef 

94  I                  Conn ty  of  Callaway  v.  Fos-  fries  v.  Lawrence,  42  Iowa  198;  Wilson  v. 

.  t'.  s.  567  ;  ::   Dill.  200;    Nicolay  v,  Garroutte,  7  Cent.  L.  J.  29. 

St.  Clair  County,  3  Dill  163;  Kansas  City,  -  County  of  Hay  v.  Vansycle,  96  I     8 

&c  I:.    R.    Co.  v.  Alderman,  47   Mo.  349;  675.     See,  however,  Wilson  v.  Garroutte, 

Stater.  Macon  County  Court,  n  Mo.  453;  Sup.  Ct.  Mo.  April  T.  1878;  7  Cent.  L.  J 

Smith    v.  County  of  Clark,  -r.i    Mo    58;  29. 

State  v.  County  Court  of  Sullivan  County,  '■'■  James  v.  Milwaukee,  16  Wall   159. 

51  Mo.  522;  Town   of  Concord  v.  Ports*  -  Falconer  v.  Buffalo  ><  Jamestown  R. 

mouth  Savings  Bank,  92  I  ,8.625;  Hui  R.  Co.  69  N.  F.491;  7  Hun,  499. 
dekoper  v.  Dallas  County,  8  Dill.   171  j 

258 


§  275.]  MUNICIPAL    BONDS   IN   AID    OF   RAILROADS. 

The  town  of  Concord,  in  1869,  voted  to  make  an  appropriation  for 
that  purpose,  provided  the  railroad  company  would  run  its  road 
through  the  town.  On  the  20th  of  June,  1870,  the  company  gave 
notice  of  its  acceptance  of  the  donation ;  and  in  the  year  follow- 
ing its  bonds,  representing  the  donation,  were  issued.  The  Con- 
stitution of  Illinois,  which  took  effect  July  2, 1870,  provided  that 
no  municipality  should  become  a  subscriber  to  the  capital  stock  of 
any  railroad,  or  make  a  donation  to,  or  loan  its  credit  in  aid  of,  such 
corporation,  provided  that  subscriptions  authorized  under  existing 
laws,  by  vote  had  prior  to  the  adoption  of  the  Constitution,  should 
not  be  affected.  In  an  action  upon  the  bonds,  the  Supreme  Court 
of  the  United  States  held  that  the  Constitution  annulled  the  power 
of  a  town  to  make  a  donation,  or  to  loan  its  credit,  to  a  railroad 
company  after  its  adoption  ;  and  moreover,  that  as  the  town  had 
no  authority  to  make  a  contract  to  give  money  to  the  railroad 
company,  and  the  acceptance  by  the  company  was  an  undertak- 
ing to  do  nothing  which  it  was  not  bound  to  do,  before  the  au- 
thority of  the  town  to  make,  or  to  engage  to  make,  a  donation 
came  into  existence,  no  valid  contract  arose  from  such  offer  and 
acceptance.  Such  acceptance  was  not  regarded  as  an  engagement 
to  locate  and  build  the  road  through  the  town.  There  was, 
therefore,  no  consideration  for  the  town's  promise  to  give,  even 
if  the  popular  vote  could  be  considered  as  a  promise.  There  was 
no  contract  to  be  impaired  ;  and  a  contract  should  be  clearly 
proved  before  the  federal  Constitution  is  invoked  for  its  protec- 
tion.1 

In  like  manner,  where  a  town  in  the  State  of  New  York  im- 
posed as  a  condition  precedent  to  subscribing  for  stock  and  deliv- 
ering the  town  bonds,  that  the  road  should  be  located  and  con- 
structed through  the  town,  and  this  condition  was  not  complied 
with  prior  to  the  first  day  of  January,  1875,  when  the  amendment 
to  the  Constitution  of  the  state  went  into  effect,  prohibiting  any 
town  from  loaning  its  credit  in  aid  of  any  corporation,  or  from 
subscribing  for  its  stock  or  bonds,  the  Court  of  Appeals  of  that 
state  held  that  the  power  to  issue  the  bonds  thereupon  ceased  ; 
that  inasmuch  ps  commissioners  appointed  by  the  town  could 
neither  issue  the  bonds  nor  subscribe  for  the  stock  until  the  con- 
dition was  complied  with,  they  could  not  issue  the  bonds  upon  an 
agreement  by  the  railroad  company  to  comply  with  the  condition 
1  Town  of  Concord  v.  Portsmouth  Savings  Bank,  92  U.  S.  625. 

251 


CONDITIONS   PRECEDENT    TO    GRANTING   MUNICIPAL   AID.       [§  276. 

so  as  to  give  the  company  any  right  to  the  bonds  upon  a  subse- 
quent compliance  with  it  after  the  adoption  of  this  constitutional 
amendment.1 

276.  But  completed  subscriptions  or  contracts  to  sub- 
scribe for  the  stock  of  a  railroad  company,  made  in  pursuance  of 
legislative  authority  previously  given,  are  not  affected  by  the 
adoption  of  a  constitutional  provision  abrogating  the  power  to 
subscribe.  Thus,  a  board  of  supervisors  having  the  power  to 
subscribe  for  the  stock  of  a  railroad  company  and  to  issue  bonds 
therefor  when  the  road  should  be  open  for  traffic,  ordered  a  sub- 
scription, which  the  company  accepted  just  before  the  new  Consti- 
tution took  effect.  This  was  regarded  as  a  binding  contract, 
which  authorized  the  subsequent  delivery  of  the  bonds,  although 
the  power  to  enter  into  such  a  contract  was,  after  the  adoption 
of  the  Constitution,  withdrawn.  The  subsequent  delivery  of  the 
bonds  was  only  the  performance  of  a  binding  contract  made  be- 
fore the  authority  to  make  it  was  annulled.  The  Constitution  of 
a  state  cannot  be  allowed  to  impair  a  contract,  any  more  than  its 
statutes  can.  The  subscription  being  valid,  the  bonds  issued  for 
the  sum  subscribed  are  also  valid.2 

Bonds  valid  by  the  Constitution  and  laws  of  a  state,  as  ex- 
pounded by  the  authorities  whose  duty  it  is  to  administer  those 
laws,  cannot  be  impaired  in  obligation  by  any  subsequent  action 
of  the  legislature  or  judiciary.3  When  bonds  have  been  sold 
upon  the  faith  of  decisions  of  the  Supreme  Court  of  a  state  es- 
tablishing their  validity,  they  cannot  be  invalidated  in  the  hands 
of  persons  who  have  already  purchased  them  in  good  faith,  by  a 
subsequent  reversal  of  the  former  decisions  of  that  court.1 

When  a  subscription  in  aid  of  a  railroad  has  been  made  in  any 
legal  form,  and  the  conditions  precedent,  have  been  complied  with, 
a  contract  exists  which  may  he,  enforced  by  mandamus.6     Cred- 

»  Falconer  v.  Buffalo  &  JameBtown  I!.  B  People  v.  Ohio  Grove  Township,  51 

B.  Co.  69  N.  V.  491.  III.  L92;  State  v.  I. inn  Countj   Court,  14 

onty   oi    .Moultrie  v.   Rockingham  Mo.  504;    Selma  &  Gulf    1!.   R.  Co.  ex 

Ten  I  i:    ik,  92  U.  8.  631  parte,    15    Ala.   696  ;     C issioners    of 

..    I.       County,    3    Wall.  Roads,  &c.  v.  Shorter,  50  Ga,  489 ;    Napa 

327;  Havemeyer  v.  Iowa  County,  3  Wall.  Valley  R.  R.  Co.  v.  Supervisors  of  Napa 

294;  Gelpcke  v.  City  of  Dubuque,  1  Wall.  County,  80   Cal.  435;  California   North- 

175,  (in    R,   R.  i  !o.  v.  Butte  County,   L8  Cal. 

4  United  States  v.  Supervl  oi     of  Lee  671. 
County,  u  lie-.  77;  :;  Wall.  827. 


§  277.]  MUNICIPAL    BONDS   IN    AID    OF   RAILROADS. 

itors  of  the  company  may  then  rely  upon  such  subscription  for 
the  payment  of  the  company's  debts  to  them  as  implicitly  as  upon 
any  other  assets  of  the  company,  although  the  company  may  sub- 
sequently abandon  all  proceedings  under  its  charter  on  account  of 
its  insolvency.1 

277.  The  corporate  existence  of  a  railroad  company  cannot 
be  called  in  question  in  a  suit  upon  municipal  bonds  issued  to  it, 
when  it  has  been  a  corporation  de  facto  from  the  date  of  its  organ- 
ization, whether  it  be  a  corporation  de  jure  or  not.2  The  issuing 
of  the  bonds  to  a  railroad  company  is  an  admission  that  it  is  a 
corporation. 

Neither  can  the  corporate  existence  of  a  municipality  or  other 
organization,  which  has  exercised  the  functions  of  a  corporation 
by  issuing  its  bonds  under  its  corporate  seal,  signed  by  its  officers, 
be  questioned  by  itself  in  a  suit  upon  the  bonds.  Whether  it 
has  been  organized  according  to  law  or  not  it  is  concluded  by  its 
acts.3 

A  company  is  none  the  less  a  railroad  company,  within  the 
meaning  of  an  act  authorizing  municipal  subscriptions  to  the  cap- 
ital stock  of  railroad  companies,  because  its  charter  vests  it  with 
the  power  to  carry  on  also  the  business  of  a  coal  mining  or  manu- 
facturing company.  If  the  people  of  a  county  think  well  of  the 
undertaking,  and  that  it  will  be  a  benefit  to  them,  it  is  a  matter 
for  their  judgment;  and  having  the  authority  of  law  to  subscribe 
in  aid  of  it,  the  matter  of  the  expediency  of  the  enterprise  is  not 
for  the  reconsideration  of  the  courts.4 

It  is  no  defence  to  a  municipal  bond,  that  the  corporation  for 
whose  benefit  it  was  issued  was  not  organized  within  the  time 
limited  by  its  charter,  or  that  the  charter  was  obtained  by  fraud, 
or  that  it  has  been  forfeited  by  misuser  or  nonuser.  Advantage 
can  be  taken  of  the  forfeiture  of  the  charter  of  a  corporation  only 
by  process  in  behalf  of  the  state  instituted  directly  against  the 
corporation  for  the  purpose  of  avoiding  the  charter.     Until  such 

1  Morgan  County  v.  Thomas,  76  111.  and  see  Coleman  v.  Board  of  Supervisors, 
120.  50  Cal.  493. 

2  Commissioners  of  Douglas  County  3  Bonham  v.  Board  of  Education  of 
v.  Bolles,  94  U.  S.  104 ;  County  of  Leaven-  Harrisonville,  4  Dill.  156. 

worth  v.  Barnes,  95   U.   S.  70,  73 ;  Dai-         4  County  of  Randolph  v.  Post,  93  U.  S. 
lington  v.  La  Clede  County,  4  Dill.  200  ;     502. 
256 


RATIFICATION   OF    BONDS   IRREGULARLY    ISSUED.         [§  278. 

forfeiture  has  been  judicially  declared  in  this  way,  it  cannot  be 
availed  of  in  collateral  suits.1 

A  town  having  voted  and  issued  bonds  as  a  corporation  is  es- 
topped in  favor  of  a  bond  fide  holder  to  set  up  that  it  was  not 
incorporated.2  Although  the  authority  to  subscribe  to  the  stock 
of  a  railroad  company  be  confined  "  to  any  incorporated  town  or 
city,"  this  language  will  embrace  towns  and  cities  afterwards  in- 
corporated at  any  time  before  the  subscription  is  made.3 


IV.    Ratification   of  Bonds   irregularly    issued   and   Waiver  of 

Conditions. 

278.  Bonds  issued  in  contravention  of  statute  may  be  legal- 
ized by  subsequent  legislation.4  It  is  competent  for  the  legislat- 
ure to  impose  upon  a  municipal  corporation  the  payment  of  bonds, 
which  are  just  obligations,  but  which,  from  some  irregularity  or 
omission  in  the  proceedings  creating  them,  cannot  be  enforced  at 
law.5  Having  the  power  to  authorize  the  issue  of  the  bonds 
originally,  it  can  by  a  retrospective  act  cure  defects  occasioned 
by  the  irregular  execution  of  the  authority  conferred.  The  ques- 
tion with  the  legislature  is  one  of  policy,  and  its  determination  is 
conclusive.6 

While  municipal  aid  bonds  issued  without  compliance  with 
legislative  authority  may  ordinarily  be  legalized  by  subsequent 
legislation,  this  cannot  be  done  when  the  Constitution  of  the  state 
has  in  the  mean  time  prohibited  the  legislature  from  authorizing 
the  i-sue  of  such  bonds,  except  on  condition  that  two  thirds  of  the 
qualified  voters  of  the  municipality  assent  thereto  at  an  election.7 

mtyof   -Macon    v.    Shores,   U.    S.  1G7  ;  Thomson    v.  Lee    County,   3  Wall. 

Supreme  Ct.  17  Albany  L.  J.  35 ;  Olcott  >■.  327;   St.  Joseph  Township  v.  Roj 

Bynum,  17  Wall.  44,  58;  Smith  v.  County  Wall.    644,666;    Campbell    '•.    City  of 

of  Clark,. 04  Mo.  58  ;  Kayser v. Trustees  of  Kenosha,  5  Wall.  194  ;  Putnam  v.  City  of 

Bremen,  16  M  New  Albany,  4  Biss.  365 ;  National  Bank 

2  Aller  v.  Town  of  Cameron,  3  Dill.  198.  of  Cleveland  v.  city  of  Iola,  U.  S.  C.  C. 

3  l, .....  i  Clarei  Ion,  U.  S.  C.  9  Kans.  689;    Supervisors  v.   Wis.  Cut. 

I  r,  609.  R.  R.  <''..  i^i  Ma-.  160.    Some  cases  in 

4  Coop  i'  '■■   Town   of   Thompson,    13  .stair  courts  hold,  however,  thai  th 
Blatchi                          I  ountj  v.  Walser,  islature  cannot   legalize    illegal    v< 
47  Mo.  189;  Williams  v.  Town  of  Duanes-  aid  of  a  railroad.     Atchison 
burgh,  66  N.  V.  ,  San ia  I  ■    I;    R.  Co.  v.  Com' 

burgh   p.Jenkins,  :.:  N.  V.  177;    Belo  v.  Co.  17  Kans.  29 ;  Marshall  v.  Silliman,  61 

mty,  76  N.  I     189  [11.  218  ;  Vv*i  ej  v.  Silliman,  62  III.  170. 

Clarke,  95  U.  8.  644.  '■  Sykes  v.   Mayor,  4c.  of  Columbus,  B 

■•  Ritchii  i    Franklin  County,  22  Wall.  Reporter,  501. 

17  257 


§  279.]  MUNICIPAL   BONDS   IN   AID    OF   RAILROADS. 

The  measure  of  the  authority  of  the  legislature  after  the  adop- 
tion of  the  constitutional  restriction  is  fixed  by  that.  In  order 
to  ratify  and  legalize  a  loan  previously  made,  the  legislature  is 
obliged  to  conform  to  this  constitutional  limitation  of  its  powers. 
It  cannot  then  validate  the  bonds  by  the  mere  expression  of  its 
consent  or  ratification.1 

In  Illinois  it  is  the  settled  doctrine  that  while  under  the  Con- 
stitution of  1848  it  was  competent  for  the  legislature  to  bestow 
directly  upon  a  county,  without  requiring  a  previous  vote  of  the 
people,  the  power  to  subscribe  for  stock  in  railroad  companies  ; 2 
yet,  as  the  power  to  subscribe  is  not  a  subscription,  and  there  is 
nothing  binding  until  the  corporate  authorities  have  actually  made 
a  subscription  under  the  power,  the  legislature  has  no  authority 
to  pass  an  act  rendering  avoid  election  and  subscription  valid,  and 
thereby  compel  the  corporation  to  incur  a  debt  against  its  own 
wishes  for  such  purpose.3 

These  decisions  were  followed  by  the  Supreme  Court  of  the 
United  States,  because  they  determined  the  construction  of  a  pe- 
culiar provision  of  the  Constitution  of  the  state,  though  the  con- 
struction was  evidently  contrary  to  the  views  of  the  Supreme 
Court,4 

The  act  of  a  municipal  corporation  may  be  ratified,  although  it 
be  ultra  vires,  so  long  as  it  is  not  within  any  constitutional  pro- 
hibition.6 

279.  A  municipal  corporation  may  waive  conditions  con- 
tained in  its  subscription  to  a  railroad  company,  or  it  may,  by 
its  action,  be  estopped  to  take  advantage  of  them.6  It  would  be 
an  unreasonable  restriction  of  the  rights  and  powers  of  a  munici- 
pal corporation  to  hold  that  it  did  not  possess  the  power  to  alter 

1  Sykes  v.  Mayor,  &c.  of  Columbus,  111.160;  Barnes  v.  Town  of  Lacon,  84  111. 
supra;    Hardenbergh   v.  Van  Keuren,  4     461. 

Abb.  N.  C.  (N.  Y.),  43.  4  Township  of  Elmwood  *;.  Marcy,  92 

2  Town  of  Keithsburg  v.  Frick,  34  111.     U.  S.  289. 

405.  5  Brown  v.  Mayor,  &c.  of  New  York,  63 

3  County  of  Richland  v.  People,  Chi-     N.  Y.  2.39. 

cago  Legal  News,  43,  for  Oct.  26,  1878;  6  County  of  Randolph  r.  Post,  93  U.  S. 

Cairo  &  St.  Louis  R.  R.  Co.  v.  City  of  Spar-  502;  Grand  Chute  v.  Winegar,  15  Wall, 

ta,  77  111.  505;  Wiley  v.  Silliman,  62  III.  373;  County  of  Moultrie  v.  Rockingham 

170;    Marshall  v.    Silliman,  61   111.  218;  Ten  Cent  Savings  Bank,  92  U.   S.  631; 

and  see  Quincy,  Mo.  &  Pacific  R.  R.  Co.  Converse   v.  City  of  Fort  Scott,  92  U.  S. 

17.  Morris,  84  111.  410  ;    Ryan  v.  Lynch,  6S  503 ;  Muller  v.  Pondir,  55  N.  Y.  325  ;  Bar- 

258  nard  v.  Campbell,  55  N.  Y.  456,  457. 


RATIFICATION   OF   BONDS   IRREGULARLY    ISSUED.  [§  280. 

its  legally  made  contract  by  waiving  conditions  found  to  be  inju- 
rious to  its  interests,  or  that  it  could  not,  like  other  parties  to  a 
contract,  estop  itself.  Thus,  if  the  delivery  of  the  bonds  be  made 
conditional  upon  the  completion  of  the  road,  or  of  a  certain  por- 
tion of  it,  by  a  time  specified,  and  the  municipality,  before  that 
date,  by  its  proper  officers,  declares  the  road  completed  to  its 
satisfaction,  and  delivers  the  bonds  and  receives  the  stock  sub- 
scribed for,  its  action  constitutes  a  waiver  and  an  estoppel,  which 
prevent  it  from  afterwards  objecting  that  the  contract  was  not 
performed  in  time.1 

When  a  subscription  has  been  made  for  the  benefit  of  a  railroad 
company,  conditioned  upon  the  compliance  of  the  company  with 
certain  terms,  as  for  instance  the  completion  of  a  portion  of  the 
road  within  a  specified  time,  the  delivery  of  the  bonds  may  be 
suspended  by  the  officers  whose  duty  it  is  to  issue  the  bonds,  or 
by  the  same  authority  that  ordered  the  subscription,  as  for  in- 
stance the  county  court.2 

280'.  A  municipality  may  be  estopped  by  its  course  of  deal- 
ing with  the  railroad  company  to  interpose  a  defence  of  irregular- 
ity in  the  exercise  of  the  power  of  issuing  bonds  ;  and  its  position 
then  in  regard  to  the  company  is  similar  to  that  which  it  occupies 
to  bond  fide  holders  of  the  bonds  without  notice.3  A  distinct  ion 
is  to  be  observed  that  ratification  by  acquiescence,  or  by  affirma- 
tive acts,  lias  been  established  only  in  cases  of  irregularities  in 
the  exercise  of  the  power  to  issue  bonds,  and  not  in  any  case  where 
there  was  a  total  want  of  power  to  issue  the  bonds. 

But  the  doctrine  of  estoppel  as  against  a  municipal  corporation 
not  apph  in  respect  to  acts  done  in  the  exercise  of  a  prohib- 
ited power;  as  for  instance  the  issuing  of  bonds  in  violation  of  a 
constitutional  restriction  upon  the  power  of  municipal  corporations 

1  County  of  Randolph  v.  Post,     upra;  Lincoln,  81  111.  156;  New  Haven,  Middle- 
Commonwealth  v.   Pittsburg,   i.   Pa.  St.  town  &  Willimantic  R.  R.  Co.  1    Town  of 
391.  Chatham,  42  Conn.  165  ;    10  Am.   Railw. 
per  v.  8ullivan  County,  65  Mo.  R.  L68 ;   Steines  v.  Franklin  County,  48 
542.  Mo.    167,    I7c>,    185;    Barretl    v.  County 

■•  i:                Burlington,  3    Wall.   654,  Courl  of  Bchuyler  County,    n   Mo.  197, 

667;    I                I                            ille,  24  201 ;  State  v.  Van  Home,  7  Ohio  St.  327, 

How.    287;    Bupi                .    Schenck,  5  831 ;  Shoemaker  v.  Goshen  Township,  14 

Wall.   772,  781;    Butler  v.   Dunham,  27  Ohio  i                •■    Cown  of  Bennington 

111.474,  177;  People  v.  Cline,  63  01.394,  v.   Park,  50  Vt.    its,  a  woll  considered 

per  Walker,  J. ;  Logan  Count)  p.  Cityod  case,           ' 

269 


§  2S1.]  MUNICIPAL   BONDS   IN   AID    OF   RAILROADS. 

to  create  Indebtedness.1  Such  a  restriction  operates  upon  the  cor- 
poration itself;  and  it  can  neither  be  bound  by  its  agents  in  cre- 
ating an  indebtedness  in  excess  of  the  constitutional  limit,  nor  by 
their  acts  in  munition  of  such  indebtedness.  The  assent  of  all 
the  tax-payers,  or  of  all  the  inhabitants  of  the  municipality,  to  the 
creation  of  such  unauthorized  indebtedness,  or  their  recognition 
and  confirmation  of  it  after  it  has  been  created,  would  not  make 
the  debt  valid,  or  estop  the  corporation  to  deny  its  validity. 

281.  A  municipality  may  be  estopped  by  its  acts  from 
taking  advantage  of  irregularities  in  the  vote  authorizing  a 
subscription.  A  town  in  Connecticut,  for  the  purpose  of  aiding 
in  the  completion  of  a  railroad,  was  authorized  to  guarantee  a  cer- 
tain amount  of  the  bonds  of  the  railroad  company  after  the  com- 
pletion of  the  road,  provided,  that  at  a  town  meeting  the  vote  upon 
the  question  of  guaranteeing  the  bonds  should  be  taken  by  ballot, 
and  the  ballot  boxes  should  remain  open  for  the  reception  of  the 
ballots  not  less  than  two  hours.  In  the  warning,  calling  the 
voters  together,  the  selectmen  explicitly  notified  them  as  to  the 
precise  propositions  which  were  to  be  submitted  for  their  action, 
and  directed  that  those  in  favor  of  their  adoption,  and  aiding  the 
railroad,  should  deposit  a  ballot  having  the  word  "Yes"  upon 
it,  and  that  those  who  were  opposed  to  the  adoption  of  them 
should  deposit  a  ballot  with  the  word  "  No  "  upon  it.  The  record 
of  the  meeting  by  the  town  clerk  was  that  "  the  resolution  was 
adopted:  "Yes,"  178;  "No,"  80."  The  vote  was  in  fact  taken 
by  division  of  the  house,  and  not  by  ballot,  but  neither  the  officers 
of  the  town  nor  any  person  in  its  behalf  ever  claimed  or  gave  no- 
tice that  it  was  not  taken  by  ballot,  until  more  than  three  years 
after,  and  until  long  after  the  railroad  company  had,  in  good 
faith,  and  with  the  knowledge  of  the  town,  issued  the  bonds  which 
were  to  be  guaranteed,  and  delivered  them  to  contractors  who 
had  performed  work,  purchased  materials,  and  expended  money 
in  reliance  upon  them,  the  contractors  having  taken  them  with 
an  order  upon  the  town  for  its  guaranty  of  them  when  the  work 
should  be  completed.  Upon  an  application  by  the  railroad  com- 
pany for  a  mandamus  to  compel  the  town  to  guarantee  the  bonds 
according  to  the  vote,  the  Supreme  Court  of  the  state  held2  that 

1  McPherson  ».  Foster,  43  Iowa,  48.  tic  R.  R.  Co.  v.  Town  of  Chatham,  42  Conn. 

2  New  Haven,  Middletown  &  Williman-     465  ;  10  Am.  Railw.  R.  168. 

260 


RATIFICATION    OF   BONDS   IRREGULARLY   ISSUED.  [§  2S2. 

the  votes,  the  record,  and  the  subsequent  conduct  of  the  town 
and  its  inhabitants,  subjected  them  to  the  operation  of  the  law  of 
estoppel  as  completely  as  if  the  town  had  become  the  makers  of 
the  bonds  and  had  declared  in  them  that  it  had  complied  with  all 
the  requirements  of  the  law  in  issuing  them,  and  had  allowed 
them  to  pass  into  the  hands  of  innocent  holders ;  and  that  the 
town  could  not  avail  itself  of  the  fact  that  the  vote  was  illegally- 
taken,  or  of  a  correction  of  the  vote  afterwards  made  by  order  of 
court.  It  was  attempted  in  this  case  to  charge  the  railroad  com- 
panv  with  notice  of  the  illegality  of  the  vote,  on  the  ground  that 
when  the  vote  was  taken  the  treasurer  and  managing  director  of 
the  railroad  company  was  present,  and  saw  how  it  was  done  ;  but 
inasmuch  as  he  was  not  acting  officially,  and  his  knowledge  was 
not  conveyed  to  any  of  the  other  directors  of  the  company,  it  was 
held  that  the  company  was  not  affected  by  his  knowledge.  Of 
course,  if  notice  of  the  illegality  of  the  vote  had  been  brought 
home  to  the  company,  it  could  have  acquired  no  rights  under  it. 
Thus,  in  People  v.  Cline,1  an  application  for  a  mandamus  to  com- 
pel (he  proper  county  authorities  to  issue  bonds  in  aid  of  a  rail- 
road pursuant  to  a  contract  of  subscription  was  decreed  ;  on  the 
ground  that  the  company,  at  the  time  the  contract  of  subscrip- 
tions was  made,  had  notice  of  illegalities  in  the  petition  on  which 
the  election  was  held,  and  in  the  election  itself. 

282.  A  municipal  corporation  may  by  the  payment  of  in- 
terest, or  by  holding  stock  received  for  the  bonds,  or  by  other 
acts,  become  bound  to  pay  bonds  issued  in  its  name,  although  the 
execution  of  them  was  irregular,  or  without  authority.2  Ratifica- 
tion may  also  be  inferred  from  long  delay  in  taking  advantage  of 
an  irregular  or  unauthorized  issue  of  municipal  bonds,  though 
such  ratification  is  doubtless  more  cautiously  inferred  in  case  of 
municipal  corporations  than  it  is  as  against  private" corporations, 
because  experience  shows  that  public  officers  do  not  guard  the  in- 
terests confided  to  them  with  the  same  vigilance  and  fidelity  (hut 
characterize  the  officers  of  private  corporations.'1  In  Pendleton 
County  v.  Amy,4  where  it  appeared  that  the  county  had  received 

1  63  111.394;  7  Am.  Railw.  R.  873.  1    Biss.  314;    Leavenworth,   Lawrence  & 

ntjrof  Ray  v.  Vansycle,  96  I'.  8.     GalvestonR.  R.Co.  v.  Douglas  County,  18 
r,">;   McKee  v.   Vernon  County,  •';  Dill.     Cans.  169. 

210;    Afunson    '•.    Town    <>f*   Lyons,    12        -  Dillon  on  Municipal  Bonds,  p.  59. 
Blatchf.  539;    Luling  v.  City  of  Racine,        <  13  Wall.  297. 

261 


§  283.]  MUNICIPAL   BONDS   IN   AID    OF   RAILROADS. 

in  exchange  for  its  bonds  stock  of  a  railroad  company  which  it 
had  held  for  seventeen  years  without  questioning  the  validity  of 
its  hi 'mis,  it  was  not  allowed  to  assert  against  an  innocent  holder 
of  the  bonds  that  they  were  issued  in  disregard  of  a  condition  re- 
quiring a  popular  election.  The  bonds  contained  no  recitals,  and 
no  interest  had  been  paid,  so  that  the  estoppel  rested  altogether 
upon  the  receipt  and  holding  of  the  railroad  stock.1 

A  municipality  by  accepting  and  holding  stock  of  a  railroad 
company,  and  issuing  its  bonds  in  aid  of  it  under  legislative  au- 
thority, is  thereby  estopped  from  claiming  as  against  any  holder 
of  them,  entitled  to  the  position  of  a  bond  fide  purchaser  for 
value,  that  there  was  any  defect  in  the  order  for  an  election,  or 
in  the  manner  of  holding  it.2 

V.  Negotiability  of  Municipal  Securities. 

2S3.  Without  legislative  authority  municipal  corporations 
cannot  invest  its  obligations  with  the  character  and  inci- 
dents of  commercial  paper,  so  as  to  give  them  immunity,  in  the 
hands  of  bond  fide  holders,  from  defences  to  which  they  would 
be  subject  in  the  hands  of  the  original  parties.3  It  is  not  essen- 
tial, however,  that  the  authority  to  give  bonds  a  negotiable  and 
commercial  form  and  character  should  be  given  in  express  terms ; 
but  such  authority  may  be  inferred  from  authority  to  issue  in- 
terest bearing  bonds  having  a  long  time  to  run,  in  aid  of  rail- 
roads.1 But  ordinary  corporation  orders,  warrants,  and  certificates 
of  indebtedness,  are  not  within  this  principle.  Although  negoti- 
able in  form  and  negotiable  in  character,  so  far  as  to  enable  the 
holder  to  sue  in  his  own  name,  they  do  not  exclude  inquiry  into 
the  legality  of  their  issue,  or  preclude  defences  in  the  hands  of 
any  holder.5  The  power  to  issue  such  warrants  is  doubtless  im- 
plied as  incidental  to  municipal  corporations  in  carrying  on  their 

1  This  case  is  regarded  as  an  extreme  &c.  of  Hoboken,  39  N.  J.  L.  394 ;  Town 
application  of  the  doctrine  of  Estoppel ;  of  Hackettstown  v.  Swackhamer,  37  N.  J. 
but  the  decision  is  believed  to  be  correct,  L.  191  ;  Hamlin  v.  Meadville,  6  Neb.  227. 
while  that  in  .Marsh  v.  Fulton  County,  10  *  City  of  Vicksburg  v.  Lombard,  51 
Wall.  C7G,  irreconcilable  with  it,  is  wrong.  Miss.  111. 

See  Town  of  Bennington  v.  Park,  50  Vt.  5  Mayor  v.  Ray,  19  Wall.  468;  Town 

178.  of  Hackettstown  v.  Swackhamer,  supra  ; 

2  Commissioners  of  Johnson  County  v.  Knapp  v.  Mayor,  &c.  of  Hoboken,  supra  ; 
January,  94  U.  S.  202.  Matthis  v.  Town  of  Cameron,  02  Mo.  504. 

3  Dillon's  Munic.  Corp.  §  106  ;   Mayor  Contra,  Garvin  v.  Wiswell,  83  111.  215. 
v.  Ray,  19  Wall.  468;    Knapp  v.  Mayor, 

262 


NEGOTIABILITY    OF   MUNICIPAL   SECURITIES.  [§  283. 

affairs  ;  though  the  power  to  issue  them  is  usually  conferred  by- 
charter  or  statute.1  Negotiable  bonds  issued  by  such  corpora- 
tions, in  pursuance  of  a  power  conferred  by  the  legislature,  are 
valid  commercial  instruments  ;  though  if  issued  without  such  au- 
thority they  are  invalid,  even  in  the  hands  of  innocent  holders.2 
In  respect  to  the  implied  power  of  corporations  to  issue  negoti- 
able securities,  there  is  a  wide  distinction  between  ordinary  com- 
mercial or  business  corporations  and  municipal  corporations  ;  for, 
while  the  former,  according  to  the  American  doctrine,  may  bor- 
row money  and  issue  their  negotiable  securities  therefor  without 
legislative  authority,3  the  latter  either  have  no  such  implied 
power,  or  such  power  is  very  much  limited.  This  distinction  is 
founded  in  the  general  public  policy  which  requires  the  main- 
tenance of  such  a  restraint  upon  public  officers  and  public  cor- 
porations. "  Private  corporations  are  much  more  vigilant  and 
watchful  of  their  interests  than  it  is  possible  for  public  or  munic- 
ipal corporations  to  be."  4  Judge  Dillon  is  therefore  of  opinion  that 
public  and  municipal  corporations  have  no  implied  power  to  bor- 
row money  even  for  their  ordinary  purposes,  and  incidentally  no 
implied  power  to  issue  commercial  securities  for  such  purposes.0 
This  view  is  dissented  from  by  other  authorities,  which  hold  that 
where  a  municipality  has  lawfully  created  a  debt,  it  has  the 
implied  power,  unless  restrained  by  its  charter  or  a  statute,  to 
acknowledge  the  same  by  a  bill,  bond,  or  other  negotiable  instru- 
ment; that  the  power  to  contract  the  debt  implies  the  right  to 
issue  the'  proper  acknowledgment  of  it.6  It  is  admitted,  however, 
that  in  a  broad  sense  the  power  to  borrow  money  and  issue  bonds 

1  Mayor  v.   Ray,  19   Wall,  468,  477;     made  by  a  divided    court.    Paxson,  J., 
Shirk  v   Pulaski  County,  4  Dill.  209.  giving  the  judgment  of  the  court,  criticises 

2  St.  Joseph   Township  v.    Rogers,   16     the  authorities  cited  in  the  prei 

644,659.  and  cites  in  support  of  the  implied  power 

8  See  §  19.  of  such  corporations  to  borrow  and  issue 

4  Dillon  o n  Municipal  Bonds,  §  0.  securities    for   ordinary    purposes:   Bank 

6  Muni  ipal    Bonds,   p.    L3.     See,  also,  of  Chillicothe  v.  Mayor  of   Chillicothe,  7 

Police  Jury    v.   Britton,    15   Wall.   566;  Ohio,  354;  Sturtevant  v.  City  of  Alton, 

Mayor  <•.  Ray,   19    Wall.   468,   cited    by  a   McLean,  393;    Mullarky   v.   Town   of 

Judge  Dillon;    also,  Shawnee  County  v.  Cedar  Falls,  19  [owa,21;   Citj  -l'  Galena 

;•,  -  Kan-.  1 1 :.  ;   Town  of  Backetts-  v.  Corwith,  48   Ml.   123;  Mills  v,  Gl  a  on, 

town    v.   Swackhamer,  37    N.  J.  L.  191;  11  Wi-.  170  ;  Clai  k  v.  I  it]  oi  Dea  Moines, 

Knapp  v.  Mayor  of  Boboken,  39  N.J.  I..  19  towa,  199;   Ketcl v.  City  of  Buffalo, 

894.  I  i  N.  V  356.    See,  also,  Tucker  v.  <  litj  of 

'•  City    of    William-port    v.   Common-  Raleigh,  75  N.  C 
wealth,  - 1  Pa.  St.  187.    This  decision  was 

263 


§  284.]  MUNICIPAL   BONDS   IN   AID    OF    RAILROADS. 

therefor  cannot  be  said  to  be  among  the  implied  powers  of  a  mu- 
nicipal corporation.  "  For  general  purposes  such  power  does  not 
exist,  Eor  the  reason  that  it  is  not  necessary  for  the  objects  for 
which  it  was  created.  Tims,  it  has  never  been  contended  that  a 
municipality  may  borrow  money  and  issue  bonds  or  notes  for  ob- 
jects having  no  necessary  relation  to  the  performance  of  municipal 
duties."1  As  regards  bonds  issued  to  aid  private  corporations, 
there  is  no  division  of  opinion.  Municipal  corporations  have  no 
implied  power  to  issue  such  bonds. 

284.  Bonds  issued  by  municipal  corporations  payable  to 
bearer  are  negotiable  instruments,  and  as  such  give  the  holder 
a  good  title,  free  of  all  prior  equities  between  antecedent  parties, 
to  the  same  extent  as  bills  of  exchange  and  promissory  notes.2 
The  fact  that  they  are  issued  under  the  seal  of  the  corporation 
does  not  affect  their  negotiability.3 

Municipal  bonds  payable  to  bearer  are  subject  to  the  same  rules 
as  other  negotiable  paper.  They  are  transferable  by  delivery,  and 
when  issued  by  competent  authority  pass  into  the  hands  of  a  bond 
fid-:  purchaser  for  value,  before  maturity  freed  from  any  infirmity 
in  their  origin.  As  with  other  negotiable  paper,  mere  suspicion 
on  the  part  of  a  purchaser  that  there  may  be  a  defect  of  title  in 
the  holder  of  such  bonds,  or  even  knowledge  on  the  part  of  the 
purchaser  of  circumstances  which  would  excite  suspicion  as  to  the 
title  in  the  mind  of  a  prudent  man,  is  not  sufficient  to  impair  the 
title  of  the  purchaser.4  "  Gross  negligence,"  said  Lord  Denman,5 
"may  be  evidence  of  mala  fides,  but  it  is  not  the  same  thing." 
Nothing  short  of  bad  faith  on  the  part  of  the  purchaser  will  affect 
his  title. 

i  Per  Paxson,  J.,  in   City  of  Williams-  Banking  Co.  v.  Fisher,  1   Stockt.  (N.J.) 

port  v.  Commonwealth,  supra.  667  .    Morris    Canal    &    Bunking  Co.    v. 

2  Commissioners  of  Marion  County  v.  Lewis,  1  Beas.  (N.  J.)  323 ;  Boyd  v.  Ken- 
Clark,  94  U.  S.  278  ;  Thomson  v.  Lee  nedy,  38  N.  J.  L.  146  ;  Hackett  v.  City  of 
County,  3  Wall.  327;  Mercer  County  v.  Ottawa,  U.  S.  C.  C.  for  N.  I).  111.  11 
Hackct,  1  Wall.  83  ;  Murray  r.  Lardner,  2  Chicago  Leg.  N.  82. 
Wall.  110;  Dutchess  County  Ins.  Co.  v.  8  Mercer  County  v.  Hacket,  supra. 
Hachfield,  1  Hun  (N.  Y.),  075  ;  Welch  v  Contra,  see  Diamond  v.  Lawrence  County, 
Sage,  47  N.Y.  143;  Seyhel  v.  National  Cur-  37  Pa.  St.  353 ;  County  of  Armstrong  v. 
rency   Bank,    54   N.  Y.  288 ;    Garvin  v.  Brinton,  47  lb.  3G7. 

ell,  83  111.  215  ;    City  of  Mt.  Vernon  4  Cromwell  v.  County  of  Sac,  96  U.  S.  51. 

v.  Bovey,  52  Ind.  5G3  ;    Morris    Canal  &  s  Goodman  v.  Harvey,  4  Ad.  &  El.  870. 

264 


NEGOTIABILITY    OF   MUNICIPAL   SECURITIES.       [§§  285,  286. 

285.  Municipal  bonds  issued  under  legislative  authority, 
with  blanks  for  the  name  of  the  payee,  have  the  same  nego- 
tiable quality  as  bonds  complete  when  issued.  A  subsequent 
bond  fide  holder  has  implied  authority  to  fill  the  blank  with  his 
name.1  The  rule  that  a  deed  must  be  complete  when  issued  has 
no  application  in  this  country  to  negotiable  bonds  and  other  com- 
mercial paper  drawn  with  a  blank  for  the  name  of  the  payee. 
The  addition  following  the  blank  of  the  words  "his  executors, 
administrators,  or  assigns,"  does  not  affect  the  negotiability  of  the 
bonds.2 

286.  A  recital  in  a  bond  payable  to  bearer  of  the  purpose 
for  -which  it  is  issued,  as  "  that  it  is  issued  for  the  purpose  of  sub- 
scribing to  the  capital  stock  of  the  Fort  Scott  and  Allen  County 
Railroad,  and  for  the  construction  of  the  same  through  the  said 
township,  in  pursuance  of  and  in  accordance  with  an  act  of  the 
legislature  of  the  State  of  Kansas  ;  .  .  .  .  and  for  the  payment  of 
the  said  sum  of  money  and  the  accruing  interest  thereon,  in  man- 
ner aforesaid,  upon  the  performance  of  the  said  condition  the  faith 
of  the  aforesaid  Humboldt  Township,  as  also  its  property,  revenue, 
and  resources,  is  pledged,"  does  not  destroy  the  bond's  negotiabil- 
ity. The  words  "  upon  the  performance  of  the  said  condition" 
were  declared  not  to  refer  to  anything  mentioned  in  the  recital, 
for  there  was  no  condition  there  ;  but  rather  to  a  stipulation  for 
the  payment  of  the  interest  at  a  banker's  "  on  the  presentation  and 
surrender  of  the  respective  interest  coupons."  In  giving  judg- 
ment the  court  say  :3  "  The  construction  of  the  road  as  well  as  the 
subscription  for  stock  were  mentioned  in  the  recital  as  the  reasons 
why  the  township  entered  into  the  contract,  not  as  conditions 
upon  which  its  performance  was  made  to  depend.  It  was  for  the 
purpose  of  subscribing,  and  to  aid  in  the  construction  of  the  mad, 
that  the  bond  was  given.  The  words  '  upon  the  performance  el' 
the  said  condition'  cannot,  then,  refer  to  anything  mentioned  in 
the  recital,  for  there  is  no  condition  there." 

A   stipulation    in    the   bond    that   the   interest   is   payable  at  :i 

1  White  '■.   Vt.  ;■■    M., ...  i;.  R.  < '.,.  m  2  DutchesB    Comity   Mut.   Ins.   Co.  v. 

Bow.  575;    Bubbard  <-.  X.  V.  &  Barlem  Bachfield,  1  T.  &  ' '.  (N.  V.)  158. 

i;.  K.  Co.36  Barb.  (X.  5f.)286j  Brainerd  '■'■  Bumboldl  Township  v.  Long,  92  U. 

v.  X.   V.        Barlem   R.  R.  I  0.  25  N.  V.  S.  642.    See,  also,  Botchkiss  v.  National 

4'JD;    Ledwicb  v.  McEim,  53   N.  Y.  307 ;  Banks,  21  Wall.  354. 
Kennedy,  38  X.  J.  I,.  1  L6. 

265 


§§  287,  288.]      MUNICIPAL  BONDS  in  aid  of  railroads. 

banker's  on  the  presentation  and  surrender  of  the  respective  in- 
terest coupons  dors  not  destroy  the  negotiability  of  the  instru- 
ment.    Such  presentation  and  surrender  are  implied.1 

VI.  Rights  of  bond  fide  Holders  of  Negotiable  Bonds  of  Munici- 
palities. 

2iSl .  The  circumstance  that  chiefly  distinguishes  munici- 
pal bonds  from  bonds  of  private  corporations  and  from  nego- 
tiable  paper  of  individuals  is,  that  municipal  corporations  have  no 
inherent  power  to  make  such  securities,  but  their  power  is  in  all 
cases  derived  from  legislation ;  and  therefore  their  authority  to 
issue  these  securities  is  always  open  to  question,  unless  they  have 
estopped  themselves  by  their  action  in  relation  to  such  securities, 
or  by  their  recitals  of  authority  contained  in  them,  from  denying 
thai  they  are  bound  by  them.  Estoppel  by  their  own  acts,  such 
as  the  payment  of  interest  upon  the  securities,  or  long  delay  in 
raising  any  question  of  their  validity,  applies  in  favor  of  the  orig- 
inal  holders  of  the  bonds,  as  well  as  to  subsequent  bond  fide  pur- 
chasers for  value.  This  part  of  the  subject  has  already  been  con- 
sidered ;  estoppel  by  recital  contained  in  the  bonds  themselves  ap- 
plies only  in  favor  of  subsequent  purchasers  who  may  be  supposed 
to  know  nothing  of  the  circumstances  of  the  original  issue  of  the 
securities,  and  to  have  bought  them  relying  upon  the  recitals  of 
authority  contained  in  the  bonds  themselves.  This  part  of  the 
subject  will  be  considered  in  the  following  sections  as  part  of  the 
law  pertaining  to  the  rights  of  bond  fide  purchasers  and  holders 
of  municipal  bonds. 

288.  As  against  the  title  of  a  bona  fide  holder  of  municipal 
bonds,  irregularity,  fraud,  or  misconduct  on  the  part  of  the  officers 
or  agents  of  the  corporation  in  issuing  its  bonds  cannot  be  consid- 
ered.2 Want  of  power  to  issue  the  bonds  is  the  only  defence  that 
is  open  to  the  corporation  after  it  has  put  its  bonds  upon  the  mar- 
ket and  they  have  passed  into  the  hands  of  innocent  holders  for 
value. 

A  defective  execution  of  bonds,  as  for  instance   an  omission  of 

1  Humboldt  Township  v.  Long,  92  U.S.  Chute  v.  Winegar,  15  Wall.  355;  Rail- 
642.  road    Co.   v.    Otoe    County,  1  Dill.  338; 

2  Town  of  East  Lincoln  v.  Davenport,  Belo  v.  Com'rs  of  Forsythe  County,  76 
94  U.  S.  801 ;  Commissioners  of  Johnson  N.  C.  489  ;  Black  v.  Cohen,  52  Ga.  621  ; 
County   v.   Thayer,  94  U.  S.  631;    Grand  Lane   v.  Schomp,  20  N.  J.  Eq.  82. 

266 


RIGHTS   OF   BONA   FIDE   HOLDERS.  [§  289. 

the  treasurer  of  a  county  to  countersign  its  bonds  as  provided  by- 
statute,  does  not  invalidate  them.1 

When  a  municipal  corporation  has  in  fact  authority  to  issue 
negotiable  bonds,  and  it  proceeds  to  exercise  this  power,  and  to 
send  into  the  market  such  bonds,  which  upon  their  face  purport 
to  have  been  issued  in  pursuance  of  a  given  law,  the  corpora- 
tion cannot  afterwards  deny  this  affirmation  as  against  holders 
who  have  purchased  them  for  value  and  in  good  faith.  It  cannot 
claim  that  the  conditions  prescribed  for  the  issue  of  the  bonds  had 
not  been  complied  with  ;  or  that  no  occasion  for  their  issue,  ex- 
isted.2 

289.  Three  important  rules  governing  municipal  bonds  are 
hud  down  by  Mr.  Justice  Hunt  in  a  case  before  the  Supreme 
Court  of  the  United  States,  as  follows  :3  — 

"  I.  If  an  election  or  other  fact  is  required  to  authorize  the 
issue  of  the  bonds  of  a  municipal  corporation,  and  if  the  result  of 
that  election,  or  the  existence  of  that  fact,  is  by  law  to  be  ascer- 
tained and  declared  by  any  judge,  officer,  or  tribunal,  and  that 
judge,  officer,  or  tribunal,  on  behalf  of  the  corporation,  executes 
or  issues  the  bonds,  with  a  recital  that  the  election  has  been  held, 
or  that  the  fact  exists  or  has  taken  place,  this  will  be  sufficient 
evidence  of  the  fact  to  all  bond  fide  holders  of  the  bonds.4 

"  II.  If  there  be  lawful  authority  for  the  municipality  to  issue 
its  bonds,  the  omission  of  formalities  and  ceremonies,  or  the  exist- 
ence of  fraud  on  the  part  of  the  agents  of  the  municipality  issuing 
the  bonds,  cannot  be  urged  against  a  bond  fide  holder  seeking  to 
enforce  them. 

"  III.  There  must,  however,  be  an  original  authority,  by  stat- 
ute, to  the  municipality  to  issue  bonds.  Municipal  corporal  ions 
have  not  the  power,  except  through  the  special  authority  of  the 
in!.-,  to  issue  corporate  bonds  which  will  bind  their  towns  ; 

1  Melvin  v.  Lisenby,  Supreme  Court  of  burg   Township,  27  Ohio  St;.  96  ;   Steam- 
Ill.  5  Cent.  L  J.  15.  boat  Co.  /■.  McCutcheon,  13   Pa.  Si.   13. 

otj    of  Macon   v.  Shores,    U.  S.  Contra,  Town  of  Eagle  v.   Kohn, 

Supreme  Ct.  17  All/any  L.  .  J.: :;.');    Super-  292. 

.  nek,  5  Wall.  772,  784;   Mer-  :;  Kenicott  v.  Supervisors,  16  Wall.  452 ; 

chants' B                                10  Wall.  604,  quoted  and  approved  bj  Judge  Dillon  in 

Douglas  County  Huidekoper  '•.  Buchanan  County,  3  Dill. 

- .  Bo  le  ,  94  U.  S.  10                             <  My  17.".. 

of  Fort   Scon,   '.rj    i".  s.  503;    State  of  *  See,  also,  Township  of  Rock  Creek  v. 

Ohio  v.  Board   of   Education  of   Perrys-  Strong,  96  I  ,  S.  271. 

267 


§  290.]  MUNICIPAL    BONDS   IN   AID   OF   RAILROADS.' 

neither  have  they  the  power  to  sell  or  mortgage  the  lands  belong- 
ing to  such  (owns,  without  special  authority." 

290.  Although  its  agents  or  officers  violated  their  instruc- 
tions and  their  duty  in  issuing-  the  bonds  of  a  corporation  having 
authority  to  borrow  money  and  issue  its  bonds  therefor,  it  is  re- 
sponsible for  them  to  bond  fide  holders.  Thus  certain  bonds  of 
the  city  of  Richmond  having  been  confiscated  under  authority  of 
the  Confederate  government  during  the  late  war,  and  the  city 
having  been  directed  by  decree  of  court  to  issue  to  its  receiver 
bonds  in  place  of  those  so  confiscated,  the  city  council  directed  its 
officers  to  issue  the  bonds  as  directed  by  the  decree  ;  but  to  insert 
on  the  face  of  the  bonds  so  issued  a  declaration  that  they  were  so 
issued  in  lieu  of  confiscated  bonds.  This  direction  was  obeyed  in 
the  first  issue  of  the  bonds,  but  was  disregarded  in  an  issue  to  a 
subsequent  purchaser,  who  paid  value  for  the  bonds  in  ignorance 
that  they  represented  confiscated  bonds.  The  city  was  held  liable 
upon  the  bonds  so  issued.1  Although  the  officers  exceeded  their 
authority  in  issuing  the  bonds  in  this  manner,  the  city  cannot 
avail  itself  of  this  defence.  The  very  nature  of  such  a  bond  is 
that  it  shall  furnish  authentic  and  conclusive  evidence  of  the  hold- 
er's title  to  it.  Facility  of  transfer  is  one  of  the  advantages  be- 
longing to  this  species  of  property,  and  this  advantage  would  be 
destroyed  if  a  purchaser  should  be  required  to  look  to  the  regu- 
larity of  the  transfer  to  all  the  various  persons  through  whom  the 
bond  has  passed.  Bonds  which  are  not  negotiable  may  be  as- 
signed by  a  written  assignment,  but  the  assignee  takes  only  an 
equitable  title,  and  the  bonds  are  in  his  hands  subject  to  the  same 
defences  to  which  they  would  have  been  subject  in  the  hands  of 
any  previous  holder.  But  when  upon  a  transfer  new  bonds  are 
issued  to  the  purchaser,  they  give  him  a  legal  title,  unaffected  by 
any  defences  which  might  have  been  taken  against  any  prior 
holder. 

The  rights  of  a  bond  fide  holder  of  bonds  apparently  issued  in 
conformity  to  law  are  forcibly  illustrated  in  the  case  of  the  bonds 
of  the  town  of  Lansing  issued  in  aid  of  the  Cayuga  Lake  Rail- 
road Company.  By  statute  the  county  judge  was  authorized,  on 
a  petition  by  a  specified  number  of  tax-payers,  to  ascertain,  by 
judicial  inquiry,  whether  the  majority  of  the  tax-payers  of  the 
1  De  Voss  v.  City  of  Richmond,  18  Gratt.  (Va.)  338. 

268 


RIGHTS   OF   BONA   FIDE   HOLDERS.  [§  291. 

town,  in  number  and  in  taxable  property,  desired  the  town  to  issue 
its  bonds  in  aid  of  a  railroad  company,  and  upon  ascertaining 
such  to  be  the  fact  he  was  authorized  to  appoint  three  commis- 
sioners to  execute  and  issue  bonds  in  behalf  of  the  town,  and  in- 
vest them  in  the  stock  of  the  company.  On  a  petition  and  proofs, 
the  county  judge  adjudged  that  the  bonds  should  be  issued,  and 
appointed  commissioners  for  that  purpose.  Opposing  tax-payers 
obtained  a  writ  of  certiorari  for  the  review  of  the  Supreme  Court, 
which  ultimately  reversed  the  judgment.  After  the  writ  had  been 
issued  the  commissioners  executed  the  bonds  and  delivered  them 
to  the  railroad  company.  It  was  held  that  although  the  writ  sus- 
pended the  operation  of  the  judgment  and  the  authority  of  the 
commissioners,  yet  the  illegality  and  fraud  in  the  issue  of  the 
bonds  was  no  defence  against  one  who  had  purchased  them  in 
good  faith  and  for  value,  although  they  cast  upon  him  the  bur- 
den of  proving  himself  such  a  purchaser.1 

291.  A  purchaser  of  municipal  securities  need  not  look  fur- 
ther than  to  ascertain  that  the  corporation  had  authority  by  law 
to  issue  them  and  that  upon  their  face  they  import  a  compliance 
with  the  law  under  which  they  were  issued.2  He  has  the  right 
to  presume  that  such  securities  were  issued  under  circumstances 
which  gave  the  requisite  authority.  The  securities  being  exe- 
cuted by  the  proper  municipal  officers,  the  purchaser  is  under  no 
obligation  to  ascertain  whether  they  were  authorized  to  execute 
these  securities;  and  there  is  no  distinction,  in  this  respect,  be- 
tween securities  issued  by  officers  of  the  municipality  having 
general  powers  to  represent  it  in  its  fiscal  transactions,  and  bonds 

1  Bailey  v.  Town  of  Lansing,  13  Blatchf.  County  v.  Clews,  21  lb.  .317  ;  Cromwell  v. 
424.  County  of   Sac,   94   U.  S.  351  ;    Commis- 

2  Board  of  Commissioners  of  Knox  sioners  of  Douglas  County  v.  Bolles,  94 
County  v.  Aspinwall,  21  How.  539;  Bis-  U.S.  104;  County  of  Ca^s  v.  Slums,  '.>5 
sell  v.  City  of  Jeffersonvillc,  24  How.  287;  U.  S.  375  ;  County  of  Henry  v.  Nicolay, 
Moran  v.  Commissural  rsof  .Miami  County,  95  U.  S.  619  ;  Town  of  Concord  '■.  Ports- 
2  Black,  722;  Woods  v.  Lawrence  County,  mouth  Savings  Bank,  92  U.  S.  625; 
1  Black,  386;  Mercer  County  <-.  Hacket,  Humboldt  Township  v.  Long,  92  U.  S. 
1  Wall.  83,  93;  Gelpcke  v.  City  of  Du-  642;  Miller  v.  Town  of  Berlin,  13  Blatchf. 
buque,  l  Wall,  it:.;  Meyer  v.  City  of  245;  State  v.  Saline  County  Court,  48 
Muscatine,  1  lb.  884  ;  I  I  ington  Mo.  390;  Belo  v.  Com'rs  of  For 6y the 
v.  Butl  r,  it  II..  282;  Grand  Chute  v.  County,  76  NT.  C.  489;  City  of  Yicksburg 
Wincgar,  15  lb.  355;    St.  Joseph  Town-  v.  Lombard,  51  Miss,  ill. 

bhip  v.   Sogers,   16    li<.  oil;   Chambers 

269 


§  291.1  MUNICIPAL   BONDS   IN    AID    OF   RAILROADS. 

issued  by  officers  acting  under  a  special  power  in  the  particular 
transaction.1  Not  being  required  to  look  beyond  the  recitals  of 
the  bonds  when  he  purchases  them,  he  is  not  required,  upon  trial, 
to  produce  any  evidence  of  the  truth  of  those,  recitals.  He  can- 
not be  defeated  if  such  recitals  are  disproved  upon  the  trial,  for 
us  against  a  bond  fide  purchaser  of  a  negotiable  security  no  de- 
fences are  known  to  the  law,  except  that  the  defendant  never 
made  the  instrument,  or  that  it  is  void  by  positive  statute.  Proof 
that  any  or  all  of  the  recitals  are  incorrect  does  not  constitute  a 
defence  to  a  suit  on  the  bonds  or  coupons,  if  it  appears  that  it 
was  the  sole  province  of  the  municipal  officers  who  executed  the 
bonds  to  decide  whether  or  not  there  had  been  an  antecedent  com- 
pliance with  the  regulations,  conditions,  or  qualifications  which  it 
is  alleged  were  not  fulfilled.2 

A  statute  authorized  a  town  to  loan  its  credit  in  aid  of  a  rail- 
road company  by  issuing  its  bonds,  but  expressly  prohibited  the 
making  of  the  loan  except  on  the  condition  that  the  written  con- 
sent of  a  majority  of  the  tax-payers,  representing  a  majority  of 
the  taxable  property  of  the  town,  should  first  be  acknowledged 
and  recorded,  together  with  a  copy  of  the  assessment  roll  of  the 
town,  in  the  office  of  the  county  clerk.  Without  obtaining  the 
consent  of  the  requisite  number  of  tax-payers,  and  without  mak- 
ing any  record  as  provided,  the  commissioners  specially  charged 
with  the  duty  issued  bonds  which  recited  that  they  were  issued  pur- 
suant to  the  statute.  The  town  was  held  liable  to  a  bond  fide  pur- 
chaser of  the  bonds,  for  authority  had  been  conferred  upon  it  to  issue 
its  bonds  in  aid  of  the  railroad,  and  the  commissioners  were  its 
officers  expressly  designated  for  this  purpose,  and  the  bonds  issued 
by  them  purported  to  be  made  in  compliance  with  the  statute.3 

1  Miller  v.  Town  of  Berlin,  supra.  a    similar    statute    of    New    York,   was 

2  Commissioners  of  Marion  County  v.  made  by  the  Supreme  Court  of  the  United 
Clark,  94  U.  S.  278  ;  Town  of  Coloma  v.  States,  in  Town  of  Venice  v.  Murdoch, 
Eaves,  92  U.  S.  484  ;  St.  Joseph  Town-  92  U.  S.  494.  The  court  in  this  case  re- 
ship  v.  Rogers,  16  Wall.  644,  659  ;  Huide-  fused  to  follow  the  decisions  of  the  Court 
koper  v.  Buchanan  County,  3  Dill.  175;  of  Appeals  of  New  York  to  the  contrary, 
Grand  Chute  v.  Winegar,  15  Wall.  355;  arising  upon  the  same  statute  and  similar 
Smith  v.  County  of  Clark,  54  Mo.  58 ;  facts,  because  these  decisions  do  not  pre- 
City  of  Vicksburg  v.  Lombard,  51  Miss,  sent  a  case  of  statutory  construction.  See 
111  ;  First  Nat.  Bank  of  St.  Johnsbury  v.  Starin  v.  Town  of  Genoa,  23  N.  Y.  439  ; 
Town  of  Concord,  50  Vt.  257.  Gould  v.  Town  of  Sterling,  23  N.  Y.  456  ; 

:;  Miller  v.  Town  of  Berlin,  13  Blatchf.  People  v.  Mead,  24  N.  Y.  114  ;  36  N.  Y. 
245.     A  like   decision,  with  reference   to     224.     These  decisions   assert  that  where 

270 


RIGHTS.  OF    BONA    FIDE    HOLDERS. 


[§  292. 


292.  A  recital  in  municipal  bonds  of  compliance  with  a 
condition  precedent,  such  as  a  popular  vote  favoring  the  sub- 
scription, when  made  by  officers  of  the  municipality  who  are 
invested  with  power  to  decide  whether  that  condition  has  been 
complied  with,  is  conclusive  of  the  fact  and  binding  upon  the  mu- 
nicipality, the  recital  itself  being  a  decision  of  the  fact  by  the 
appointed  tribunal.  The  truth  or  falsehood  of  the  assertion  does 
not  concern  a  purchaser  of  the  bonds ;  he  is  bound  in  such  case  to 
look  for  nothing  beyond  the  recital  except  legislative  authority.1 

This  rule  is  now  so  firmly  seated  in  reason  and  authority,  that 
it  cannot  be  shaken.  It  has  been  repeatedly  affirmed  by  the  Su- 
preme Court  of  the  United  States.  In  a  recent  case  before  that 
court,2  Mr.  Justice  Strong  carefully  restated  the  rule  in  the  fol- 
lowing terms :   "  Where  legislative  authority  has  been  given  to  a 


authority  is  given  to  an  officer  to  exe- 
cute and  issue  bonds,  on  the  assent  of  two 
thirds  of  the  voters  of  a  town,  the  assent 
to  be  obtained  by  the  officer  and  filed  in 
a  public  office,  with  an  affidavit  verifying 
the  assent,  the  verification  amounts  to 
nothing,  subserves  no  purpose,  and  that  a 
bona  fide  holder  of  the  bonds  is  bound  to 
prove  that  the  requisite  number  of  voters 
did  actually  assent.  They  assert  this  as  a 
proposition;  not  that  the  statute  so  de- 
clares, or  that  such  is  the  interpretation 
of  the  statute.  They  ignore  the  para- 
mount purpose  for  which  the  bonds  were 
authorized  by  the  legislature,  and  they 
treat  the  written  assent  of  the  tax-pa] 
as  the  authority  to  the  township  officers, 
when,  in  fact,  the  power  was  given  by  the 
legislature,  and  it  was  only  left  to  the 
town  to  determine  by  the  action  of  two 
thirds  of  the  resident  tax-payers  whether 
tin:  supervisors  and  commissioners  might 
act  under  the  power.  Per  Strong,  J.,  in 
n  of  Venice  <-.  Murdock,  supra. 
I  San  Antonio  v.  Mehaffy,  96  U.  S. 
812;  Commissioners  of  Douglas  County 
,-.  Bolles,  '-'1  I'-  S.  I'M;  County  of 
Leavenworth  <■.  Bai  ae  .  94  I'.  S.  To ; 
<•,,,,,  of    Johnson     County    v. 

Janaarj  ,94  U.  S.  202  ;  Town  of  <  loloma 

,.    I.  ph  Town- 

ship <■.   Rogers,   16  Wall.  64 1  ;   Town  of 


Venice  v.  Murdock,  92  IT.  S.  494  ;  Town- 
ship of  Rock  Creek  v.  Strong,  96  U.  S. 
271  ;  Pollard  v.  City  of  Pleasant  Hill,  3 
Dill.  195  ;  Jordan  v.  Cass  County,  lb.  245  ; 
Washburn  v.  Cass  County,  lb.  251 ;  Nic- 
olay  v.  St.  Clair  County,  lb.  163;  Jud- 
son  v.  City  of  Plattsburg,  lb.  181  ;  Smith 
v.  Tallapoosa  County,  2  Woods,  574; 
Sala  v.  City  of  New  Orleans,  2  Woods, 
188;  Flagg  v.  Mayor,  &c.  of  City  of 
Palmyra,  33  Mo.  440 ;  Smith  v.  County 
of  Clark,  54  Mo.  58;  Belo  v.  Com'rs  of 
Forsythe  County,  76  X.  <'.  189. 

The  case  of  Marsh  v.  Fulton  County, 
10  Wall.  676,  so  far  as  it  contains  any  as- 
sertions inconsistent  with  this  rule,  is  not 
to  be  regarded.  Thai  case  is  nor,  however, 
really  inconsistent,  because  it  was  decided 
upon  the  ground  that  the  subs'cription  was 
made  for  the  stock  of  a  different  corpora- 
tion from  that  lor  which  the  people  had 
voted. 

Tb'1  rule  of  the  United  States  courts  is 
also  that  of  most  of  the  state  courts.  So- 
ciety for  Savings  v.  City  of  New  Lon- 
don, 29  Conn.  17  1;  Evansville,  Indiuii- 
I  lleveland  Straighi  Line  R.  <  !o. 
v.  City  of  Evansville,  15  1ml.  395;  Corn* 
missioners  of  Knox  County  <•.  Nichols,  14 

Ohio  Si.  260. 

-  'Town  of  Coloma  '■.  Eaves,  92  CJ.  S. 
184. 

271 


§  293.]  MUNICIPAL    BONDS    IN    AID    OF   RAILROADS. 

municipality,  or  to  its  officers,  to  subscribe  for  the  stock  of  a  rail- 
mad  company,  and  to  issue  municipal  bonds  in  payment,  but  only 
on  some  precedent  condition,  such  as  a  popular  vote  favoring  the 
subscription  ;  and  where  it  may  be  gathered  from  the  legislative 
enactment  that  the  officers  of  the  municipality  were  invested  with 
power  to  decide  whether  the  condition  precedent  has  been  com- 
plied with,  this  recital,  that  it  has  been  made  in  the  bonds  issued 
by  them  and  held  by  a  bond  fide  purchaser,  is  conclusive  of  the 
fact,  and  binding  upon  the  municipality;  for  the  recital  is  itself  a 
decision  of  the  fact  by  the  appointed  tribunal."  This  rule  is  of 
unquestionable  application  in  all  cases  where  the  recital  is  of  facts 
peculiarly  within  the  knowledge  of  the  persons  to  whom  the 
power  to  issue  the  bonds  had  been  conditionally  granted.1 

Judge  Dillon,  in  an  essay  on  this  subject,  after  an  examination 
of  the  decisions  of  the  Supreme  Court  of  the  United  States,  says  : 
"The  principle  adopted,  and  the  reasoning  of  the  court  by  which 
it  is  sustained,  lead,  it  would  seem,  logically  to  the  conclusion 
(although  there  is,  perhaps,  no  case  in  the  Supreme  Court  where 
the  facts  required  a  direct  decision  of  the  point),  that  where  the 
power  to  issue  the  bonds  is  given  upon  the  condition  of  a  previous 
vote  in  favor  of  the  proposition,  that  the  public  or  municipal  offi- 
cers can,  where  no  vote  whatever  has  been  taken,  or  the  projjosition 
has  been  voted  doivn,  bind  the  county  or  municipality  by  the  false 
recitals  in  such  unauthorized  bonds,  provided  they  are  issued  by 
the  officers  intrusted  by  the  statute  with  the  power.  Under  this 
doctrine,  limitations  upon  the  exercise  of  the  power  intended  to 
prevent  fraud  and  to  secure  a  compliance  with  the  conditions  upon 
which  the  bonds  are  authorized  are  of  little  practical  value,  and 
generally  prove  illusory."  2 

293.  A  recital  in  municipal  bonds  that  they  were  issued 
in  pursuance  of  a  subscription  made  by  the  supervisors  of  the 
county,  in  conformity  to  the  provisions  of  a  certain  statute,  estops 

1  Marcy  v.  Township  of  Oswego,  92  U.  svpra,  and  that  the  case  in  which  the  doc- 
S.  G37  ;  and  see  Humboldt  Township  v.  trine  was  first  announced,  Knox  County 
Long,  92  U.  S.  042.  In  the  latter  case  v.  Aspinwall,  21  How.  539,  is  not  sup- 
Mr.  Justice  Miller  delivers  a  dissenting  ported  by  the  English  case  on  which  it  was 
opinion    in   which   he  criticises   thi*   doc-  based. 

trine,  and  declares  that  the  reasoning    on  2  Law  of  Municipal  Bonds  in  2  South. 

which  it  is  founded  was  examined  for  the  Law  Rev.  N.  S.  p.  437 ;  also  published  as 

first  time  in  Town  of  Coloma  v.  Eaves,  a  monograph,  p.  2G. 

272 


RIGHTS    OF   BONA   FIDE   HOLDERS.  [§  293. 

the  county  from  setting  up,  against  a  bond  fide  holder  of  the 
bonds,  that  the  authority  to  make  a  subscription  with  all  its  legiti- 
mate consequences  had  expired  before  the  subscription  was  made. 
After  assuring  a  purchaser  that  the  subscription  was  made  at  a 
date  when  the  county  had  the  power  to  make  it,  it  would  be  tol- 
erating a  fraud  to  permit  the  county  to  set  up,  when  called  upon 
for  payment,  that  the  subscription  was  not  made  until  a  later  date 
when  authority  to  make  it  had  been  abrogated  by  constitutional 
provision.1 

A  recital  that  the  bonds  of  a  township  are  issued  under  and  by 
virtue  of  the  act  incorporating  the  railroad  company,  and  in  ac- 
cordance with  the  vote  of  the  electors  of  the  township  in  pursu- 
ance of  such  act,  was  held  to  estop  the  township  from  denying 
that  the  terms  of  the  act  had  been  complied  with.2 

But  if  there  be  no  law  authorizing  a  subscription  in  aid  of  a 
railroad,  a  recital  in  a  municipal  bond  that  it  is  issued  in  payment 
of  a  subscription  made  in  pursuance  of  a  vote  of  the  people  at  an 
election  specified,  the  recital,  instead  of  estopping  the  municipal- 
ity to  claim  the  invalidity  of  the  bonds,  is  notice  to  the  holder  of 
the  illegality  of  the  subscription.3 

An  erroneous  reference  in  the  recitals  of  a  bond  to  the  act  un- 
der which  the  bonds  were  issued  does  not  affect  their  validity.4 

Where  the  common  council  of  a  city  was  authorized  by  the 
legislature  to  subscribe  for  stock  in  a  railroad  company,  and  to 
issue  bonds  for  the  subscription,  on  the  petition  of  three  fourths  of 
the  legal  voters  of  the  city,  the  council,  reciting  such  a  petition, 
adopted  a  resolution  to  subscribe,  and  authorized  the  execution 
and  delivery  of  bonds  for  the  sum  subscribed.  The  bonds  recited 
that  they  were  issued  by  authority  of  the  common  council,  and 
that  three  fourths  of  the  legal  voters  had  petitioned  for  the  same, 

1  County  of  Moultrie  v.   Rockingham  purported  to  be  issued  conferred  no  power 

Ten  Cent  Savings  Bank,  92  U.  S.  631.  to  make  the  donation  after  the  Constitu- 

In   the  Town  of  Concord  v.  Portsmouth  tion  went  into  effect. 

Savin--   I5ank,  '.)2    U.  8.  625,  the  recitals  a  Town  of  Coloma  v.  Eaves,  92  U.  S. 

made   direct   reference  by  its  title  to  the  484.    See,  also,  Belo  v.  Com'rs  of  Forsythe 

act    authorizing  the  bonds,  but  did   not  County,  70  N.  C.  489;    Westermann  v. 

show  that  the  subscription  waa  made  be-  Cape  Girardeau  County,  U.  S.  C.  C.  for 

fore  the  Constitution  abrogated  the  author-  Mo.  7  ( lent.  L.  J.  353. 

ity    to  make   it;    and    moreover,  if  a  pur-  ;i  Barnes    v.    Town    of    Lacon,    84    III. 

chaser  was  bound  to  take  notice  of  the  461. 

constitutional  provision,  he  was  bonnd  to  4  Commissioners  of  Johnson  County  v. 

know  that  th  I   t  which  the  bonds     January,  94  U.  8.  202. 

is  278 


§  294.]  MUNICIPAL    BONDS   IN    AID    OF    RAILROADS. 

as  required  by  the  charter.  In  a  suit  by  an  innocent  holder  for 
value  it  was  held  inadmissible  for  the  city  to  show  that  three 
fourths  of  the  legal  voters  of  the  city  had  not  signed  the  petition 
for  the  stock  subscription.1 

294.  The  mere  issue  of  bonds  containing  a  recital  that  they 
were  issued  under  and  in  pursuance  of  a  legislative  act  was, 
in  the  leading  case  of  Knox  County  v.  Aspinwall?  declared  to  be 
a  sufficient  basis  for  an  assumption  by  the  purchaser  that  the  con- 
ditions on  which  the  municipality  was  authorized  to  issue  them 
had  been  complied  with  ;  and  that  the  purchaser  was  not  bound 
to  look  further  for  evidence  of  such  compliance,  though  the  reci- 
tals in  the  bonds  did  not  affirm  it.  This  position  was  supported 
by  the  citation  of  a  case  in  the  Exchequer  Chamber.3  Although 
this  rule  has  never  been  reversed  by  the  Supreme  Court  of  the 
United  States,  doubts  have  been  expressed  respecting  its  correct- 
ness to  its  full  extent ;  and  while  a  recital  that  a  condition  prece- 
dent, such  as  a  vote  for  subscription,  has  been  complied  with,  is 
acknowledged  to  be  conclusive  proof  of  its  performance  with  a 
bond  fide  purchaser,  yet  the  mere  execution  and  issue  of  the  bonds 
without  such  recital  is  not  regarded  as  conclusive  of  the  question, 
but  only  primd  facie  evidence  of  the  regular  issue  of  the  bonds, 
until  the  contrary  be  shown.4 

So  it  is  with  regard  to  any  other  prerequisite  to  the  execution 
and  issue  of  such  bonds  ;  such  for  instance  as  a  requirement  that 
thirty  days'  notice  of  the  election  to  determine  upon  a  subscription 
and  issue  of  bonds  be  given.  A  recital  of  compliance  with  the 
statute  made  by  the  officers  or  agents  intrusted  with  the  power 
of  issuing  the  bonds,  and  with  the  power  of  determining  whether 
the  conditions  of  fact  made  precedent  to  the  exercise  of  the  author- 
ity granted,  is  conclusive  in  a  suit  by  a  bond  fide  holder.     "  The 

i  Bissell  v.   City   of    Jeffersonville,   24  lb.  384 ;  Darlington  v.  La  Clede  County, 

How.  287.  See,  also,  Van  Hostrup  v.  Mad-  4  Dill.    200 ;  and  approved  in    Steines  v. 

ison  City,  1  Wall.  291  ;  Mercer  County  v.  Franklin  County,  48  Mo.  167,    179;  De- 

Hacket,  1  Wall.  83 ;   St.  Joseph  Township  Voss  v.  City  of  Eichmond,  18  Gratt.  ( Va.) 

v.  Rogers,  16  Wall.  644  ;  Mygatt  v.  City  338,  356. 

of  Green  Bay,  1  Biss.  292.  3  Royal  British  Bank  v.  Turquand,  6 

2  21  How.  539,  544;   reaffirmed  in  Mo-  Ell.  &  Bl.  327. 

ran  v.  Commissioners  of  Miami  County,  2  4  See  dissenting  opinion  of  Bradley,  J., 

Black,  722,  732  ;  Mercer  County  v.  Hacket,  in  Town  of  Coloma  v.  Eaves,  supra ;  citing 

1  Wall.  83  ;  Supervisors  v.  Schenck,  5  lb.  Lynde  v.  County,  16  Wall.  6,  13. 
772,  784 ;  Meyer  v.  City  of  Muscatine,  I 

274 


RIGHTS    OF   BONA   FIDE   HOLDERS.  [§  295. 

election  was  a  step  in  the  process  of  execution  of  the  power 
granted  to  issue  bonds  in  payment  of  a  municipal  subscription  to 
the  stock  of  a  railroad  company.  It  did  not  itself  confer  the 
power.  Whether  that  step  had  been  taken  or  not,  and  whether 
the  election  had  been  regularly  conducted  with  sufficient  notice, 
and  whether  the  requisite  majority  of  votes  had  been  cast  in  favor 
of  a  subscription,  and  consequent  bond  issue,  were  questions 
which  the  law  submitted  to  the  board  of  county  commissioners, 
and  which  it  was  necessary  for  them  to  answer  before  they  could 
act."  * 

295.  A  condition  in  a  legislative  act  that  the  amount  of 
bonds  which  a  township  may  vote  in  aid  of  a  railroad  shall  not 
be  above  such  a  sum  as  will  require  a  levy  of  more  than  one  per 
cent,  per  annum  on  the  taxable  property  of  the  township,  to  pay 
the  yearly  interest  on  the  amount  of  bonds  issued,  does  not  invali- 
date, in  the  hands  of  bond  fide  holders  for  value,  bonds  issued  in 
violation  of  such  provision,  when  they  contain  a  recital  that  they 
were  issued  in  accordance  with  the  act,  and  all  prerequisite  facts 
to  the  execution  and  issue  of  the  bonds  were  by  the  act  referred  to 
the  board  of  county  commissioners,  by  whom  the  bonds  were 
issued.2  The  assessment  rolls  of  the  township  may  have  been 
proper  evidence  for  the  consideration  of  the  board  of  county  com- 
missioners when  they  were  inquiring  what  the  value  of  the  tax- 
able property  of  the  township  was  ;  but  the  bonds  are  not  invalid 
in  the  hands  of  a  bond  fide  holder  by  reason  of  their  having  been 

1  Humboldt  Township  v.  Long,  92  U.  tion   for   the    election,  or  the    fact    that 

S.  642  :  The  recital  was  that  the  bonds  fifty  freeholders,  had  signed,  or  that  three 

were  "  issued  in  pursuance  of  and  in  ac-  fifths  of  the  legal  voters  had  voted  for  the 

cordance  witli  the  act  of  the  legislature."  subscription.     These  are  all  extrinsic  facta 

The  recital  in  Board  of  Commissioners  of  bearing  not  so  much  upon  the  authority 

Knox  County  v.  Aspinwall,  21   How.  539,  vested  in  the  board  to  issue  the  bonds,  as 

was  very  similar.  upon  the  question  whether  that  authority 

-  Marc.v  v.  Township  of  Oswego,  92  U.  should  be  exercised.     They  are  all,  by  the 

S.  <;:;;.    "It  is  to  be  observed  that  every  statute,  referred  to  the  inquiry  and  deter- 

prerequisite  fact  to  the  execution  ami  issue  ruination  of  the  board,  and  they  were  all 

of  the  bond-  was  of  a  nature  that  required  determined  before  the  bonds  and  coupons 

examination  and  decision.     The  existence  came  into  the  hands  of  the  plaintiff.     He 

of  sufficient  taxable  property  to  warrant  was,  therefore,  no:  bound  when   be  pur- 

the  amount  of  the  subscription  and  issue  chased  to  look  beyond  tin' act  oi  thelegis- 

ntied  to  ib-     terci  e  of  lature  and  the  recitals  which  the   bonds 

tin:  authority  conferred  upon  the  board  of  contained."     Per  Strong,  J. 

loners  than  wa-   the   peti- 


_l.) 


§  295.]  MUNICIPAL   BONDS    IN    AID    OF   RAILROADS. 

voted  and  issued  in  excess  of  the  statutory  limit  as  shown  by  the 
rolls.  Whatever  may  be  the  right  of  the  township  as  against 
those  who  issued  the  bonds,  it  cannot  set  up  against  a  bond  fide 
holder  of  the  bonds  that  the  amount  issued  was  too  large,  in  the 
face  of  the  decision  of  the  board,  and  their  recital  that  the  bonds 
were  issued  pursuant  to  and  in  accordance  "with  the  act.1 

It  is  to  be  observed  in  reference  to  this  case  that  the  recital  of 
compliance  with  the  law  is  general  and  not  specific,  and  that  the 
facts  showing  the  illegality  of  the  bonds  appeared  of  record  in  the 
township.  Judge  Dillon  remarks  that  the  case  affords,  perhaps, 
a  more  striking  illustration  than  any  previously  decided  by  the 
court,  that  the  purchaser  may  implicitly  rely  upon  the  recitals  of 
the  bonds  made  by  the  proper  officers,  that  the  authority  to  issue 
them  has  arisen,  and  that  he  need  not  look  elsewhere  to  ascertain 
this  fact.2 

Where  a  legislative  act,  under  which  township  bonds  purport 
to  be  issued,  did  not  on  its  face  show  the  purpose  of  the  bonds, 
except  by  reference  "  to  the  order  and  proclamation  of  the  town- 
ship officers  "  in  calling  an  election  previously  had,  but  the  bonds 
recited  that  they  were  issued  "  for  the  purpose  of  aiding  internal 
improvements  in  said  township,"  and  the  general  legislation  of 
the  state  showed  that  "internal  improvements  "  meant  such  pub- 
lic improvements  as  might  legitimately  be  aided  by  taxation, 
Judge  Dillon  was  inclined  to  think  that  the  purchaser  might  as- 
sume without  inquiry,  aliunde  the  bonds  and  legislative  act,  that 
the  bonds  were  issued  under  competent  legislation ;  although  they 
were  in  fact  issued  to  aid  in  the  improvement  of  a  water  power 
and  the  erection  of  a  water-mill  owned  by  private  persons.3 

A  constitutional  restriction  upon  the  amount  of  indebtedness 
a  municipal  corporation  may  create  is  binding  upon  a  bond  fide 
purchaser  of  its  negotiable  securities  ;  and  if  such  securities  are 
issued  in  excess  of  the  constitutional  limit  they  are  void,  even  in 
the  hands  of  such  a  purchaser.  He  cannot  presume  that  indebt- 
edness in  excess  of  the  constitutional  limitation  was  authorized  in 
any  way.     He  is  not  only  bound  to  know  that  the  power  of  the 

1  See,  also,  Humboldt  Township  v.  Long,  4  Dill.  200;  Nicolayt>.  St.  Clair  County, 

92  U.   S.    642,  per  Strong,  J.;  Town  of  3  Dill.  163. 

Concord  v.  Portsmouth  Savings  Bank,  92  2  Municipal  Bonds,  p.  33. 

U.  S.  625  ;  Darlington  v.  La  Clede  County,  3  Guernsey  v.  Burlington  Township,  4 


Dill.  372. 


276 


RIGHTS   OF  BONA   FIDE   HOLDERS.  [§§  296,  297. 

corporation  is  limited,  but  also  to  ascertain  whether  the  bonds  he 
is  purchasing  have  been  issued  in  compliance  with  the  law.1 

296.  When,  however,  the  statute  authorizing  the  issuing 
of  municipal  bonds  declares  absolutely  that  they  shall  be 
void  in  case  a  condition  precedent  be  not  complied  with,  they  will 
in  that  case  be  void  in  whosesoever  hands  they  may  be.2  A  statute 
of  the  State  of  Missouri3  provided  that  "before  any  bond  here- 
after issued  by  any  county  shall  obtain  validity  or  be  negotiated," 
it  shall  be  registered  by  the  state  auditor,  who  shall  certify  upon 
it  that  all  conditions  precedent  required  by  law,  and  by  the  con- 
tract under  which  the  bonds  are  issued,  have  been  complied  with. 
Subsequently  county  bonds  were  issued  in  aid  of  a  railroad  com- 
pany before  the  company  had  complied  with  conditions  upon 
which  the  issue  of  the  bonds  had  been  authorized  by  a  vote  of  the 
people  ;  and  to  evade  the  statute,  they  were  antedated  to  a  date 
prior  to  the  passage  of  the  act.  They  were  held  void  in  the 
hands  of  an  innocent  holder. 

It  may  be  that  when  a  municipal  bond  contains  no  recitals  on 
its  face  of  the  authority  under  which  it  is  issued,  and  the  want  of 
power  to  issue  it  appears  upon  the  records  of  the  municipal  cor- 
poration, the  bonds  may  be  void,  even  in  the  hands  of  a  bond  fide 
holder.  Such  at  any  rate  was  the  decision  of  the  Supreme  Court 
of  Kansas.4 

297.  "When  bonds  purport  to  be  issued  under  the  authority 
of  a  statute  referred  to,  but  recite  on  their  face  facts  incon- 
sistent with  the  statute,  they  are  not  valid  in  the  hands  of  any 
bolder.  Thus  where  the  act  authorizing  a  loan  provided  that  the 
bonds  should  be  disposed  of  at  not  less  than  their  par  value,  and 
the  money  invested  in  the  stock  of  a  railroad  company,  and  the 
bonds  referring  to  the  act  recited  that  they  were  issued  "  for  value 
received  in  the  stock  of  the  Monticello  and  Port  Jervis  Railroad 
Company,"  they  Bhowed  upon  their  face  that  they  were  issued  in 
violation  of  the  act,  and  therefore  void.5 

1  bfcPherson   v.    Foster  Bros.  13  Iowa,        8  Laws  1872,  p.  56. 

48;    Mosher  v.  Independent   School    l>Lt.  4  Lewis  v.  Bourbon   County,  12  Kane, 

of  Ackley,  1 1  fowa,  \'22.  l  B6,  221. 

2  Anthony  v.Jasper  County,  4  Dill.  186,  ''■  Sarton  v.  Town  of  Thompson,  Court 
following  the  principle  in  Bayleyv.  Taber,  <>f  Appeals  of  N.  Y.  1878,  17  Albany  Law 
5  Mass.  286;  and  :  iwnof  Eagle  J,  334  ;  and  Bee  McClure  v,  Township  of 
p.  Kohn,  84  III.  292.  rd,  94  U.  8.  429. 

•JT7 


§§  208,  299.]       MUNICIPAL   BONDS   IN   AID    OF   RAILROADS. 

Several  state  courts  have  held  that  a  purchaser  of  municipal 
securities  is  chargeable  with  notice  of  any  defect  in  the  power  of 
the  municipality  to  issue  them,  which  is  disclosed  by  the  corporate 
records  ; l  and  that  the  recitals  of  authority  in  the  bonds  are  not 
conclusive.2 

298.  Municipal  bonds  issued  in  excess  of  the  authority- 
conferred  by  the  legislature  are  void  in  whosesoever  hands  they 
may  be.  A  county  having  authority  to  subscribe  to  the  stock  of 
a  railroad  company  to  such  amount  as  should  be  fixed  by  a  ma- 
jority of  the  voters  of  the  county,  and  to  pay  the  subscription  by 
issuing  bonds  of  the  county  for  the  amount  of  the  stock  subscribed 
for,  has  no  power  to  issue  bonds  for  a  larger  amount  and  dispose 
of  them  at  a  discount  in  order  to  raise  a  sum  sufficient  to  pay  the 
amount  of  stock  subscribed  for  in  cash.3  The  power  to  issue  such 
bonds  should  be  strictly  pursued  ;  and  the  fact  that  the  county  has 
made  a  subscription,  payable  in  cash,  does  not  justify  the  issue  of 
bonds  to  any  greater  amount,  or  in  any  other  way  than  the  legisla- 
ture provided  for.  The  power  to  sell  the  bonds  to  raise  money  to 
pay  for  the  stock  was  not  given  by  the  act.  Therefore,  the  county 
may  be  enjoined  at  the  instance  of  a  tax-payer  from  levying  a  tax 
to  pay  the  interest  or  principal  of  the  over-issue  of  bonds.  But 
bond  fide  holders  without  notice  would  not  be  affected. 

299.  A  purchaser  of  municipal  bonds  cannot  claim  protec- 
tion as  a  bona  fide  holder  where  he  has  notice  that  any  of  the 
essential  proceedings  prescribed  by  law  with  reference  to  their 
issue  have  been  dispensed  with.  He  is  chargeable  with  notice  of 
that  which  the  law  requires  him  to  know,  and  with  notice  of  that 
which  he  might  have  ascertained  by  the  exercise  of  reasonable 
diligence  after  being  put  upon  inquiry.  When  the  bonds  refer 
to  the  statute  under  which  they  were  issued,  a  purchaser  is  bound 
to  take  notice  of  the  statute  and  of  all  its  requirements  ;  such 
for  instance  as  a  requirement  that  the  statute  shall  not  take  effect 
until  its  publication  in  a  certain  paper,  when  the  date  of  the  bonds 

1  Starin  v.  Town  of  Genoa,  23  N.  Y.  2  Veeder  v.  Town  of  Lima,  19  Wis. 
439  ;  Gould  v.  Town  of  Sterling,  lb.  456  ;     280. 

People  v.  Mead,  24  N.  Y.  114;  S.  C.  36         3  Daviess  County  Court  v.  Howard,  13 
N.  Y.  224.  Bush  (Ky.),  101  ;  and  see  City  of  Atchi- 

son v.  Butcher,  3  Kans.  104. 

278 


ENFORCEMENT    OF   MUNICIPAL   BONDS.  [§  300. 

is  such  as  to  show  that  the  law  could  not  have  taken  effect  at  the 
time  of  the  election  held  to  authorize  the  issue  of  the  bonds.1 

As  against  a  railroad  company  for  the  aid  of  which  a  munici- 
pality has  issued  its  bonds,  or  as  against  others  who  do  not  occupy 
the  position  of  bond  fide  holders  for  value  without  notice,  the 
defence  is  generally  open  that  the  conditions  on  which  the  proper 
exercise  of  the  power  to  issue  the  bonds  depended  have  not  been 
complied  with.2 

VII.  Enforcement  of  Municipal  Bonds. 

300.  A  provision  authorizing  municipal  corporations  to 
exercise  the  local  power  of  taxation  to  the  extent  necessary 
to  meet  their  bonds,  such  as  is  usually  contained  in  acts  author- 
izing them  to  issue  negotiable  bonds  in  aid  of  public  improve- 
ments, enters  into  and  becomes  a  part  of  the  obligation  of  the 
contract  between  such  corporations  and  the  holders  of  the  bonds.3 
The  power  thus  given  cannot  be  withdrawn  until  the.  contract  is 
satisfied.  A  subsequent  statute  or  constitutional  provision  of  the 
state  abrogating  or  repealing  the  statute  authorizing  the  levying 
of  taxes  to  meet  the  interest  or  principal  of  such  bonds,  is  in  viola- 
tion of  the  Constitution  of  the  United  States,  and  therefore  invalid. 
The  statutory  authority  to  exercise  the  power  of  taxation  to  meet 
these  engagements  is  as  much  a  part  of  the  contract  as  if  it  had 
been  written  out  at  length  in  the  bonds.4 

This  principle  is  illustrated  by  the  leading  case  of  Von  Hoffman 
v.  City  of  Quincy,5  in  the  Supreme  Court  of  the  United  States. 
When  the  bonds  in  question  were  issued  there  were  laws  in  force 
which  authorized  and  required  the  collection  of  taxes  to  meet  the 
interest  as  it  should   accrue.     A    subsequent  statute   limited  the 

1  McClure  v.  Township  of  Oxford,  94  705,  70'J  ;  Von  Hoffman  v.  City  of  Quincy, 
U.  S.  429.  See,  also,  George  v.  Oxford  4  Wall.  535  ;  llees  v.  City  of  Watertown, 
Township,  16  Kans.  72;  Mygattw.  City  of  19  Wall.  107,  120;  Lansing  v.  County 
Green  Hay,  1   Mis-.  292.  Treasurer,   1   Dill.  522;   United  States  V. 

2  Dillon  on  Munic.  Corp.  §  108  ;  Colum-  Jefferson  County,  6  Reporter,  186. 

I      rotj      <  lews, 21  Wall.317;  Union  i  City  of  Dubuque  v.  Illinois  Cent.  H. 

Pacific    R.    R.  Co.   v.  Lincoln   County,  3  It.  Co.  39  Iowa,  56 ;  Hasbrouck  v.  Citj  of 

Dill.  300;  Same  v.  Merrick   County,  Ik  Milwaukee, 25  Wis.  122;  Western  Saving 

859;  Portland  &  Oxford  Central  K.  R.  Fund  of  Philadelphia  v.  Qitj  of  Philadel- 

Co.  v.  Hartford,  58   Me,   23;  People  v.  phia, 31  Pa.  St.  175;  Beckwith  v. English, 

Cline,  63  111.  394.  51  111.147;  Vance  v.  City  of  Little  Bock, 

»  Riggs  v.   Johnson   County,  6    Wall.  80  Ark.  435,  440,  441. 

ICC,  194;  City  of  Galena  v.  Amy,  5  Wall.  &  4  Wall.  535. 


§  301.]  MUNICIPAL    BONDS   IN   AID    OF   RAILROADS. 

amount  of  taxes  the  corporation  could  levy  and  collect.  "  The 
amount  permitted  to  be  collected  by  that  act,"  say  the  court, 
k>  will  be  insufficient;  and  it  is  not  certain  that  anything  will  be 
yielded  applicable  to  that  object.  To  the  extent  of  the  deficiency 
the  obligation  of  the  contract  will  be  impaired,  and  if  there  be 
nothing  applicable,  it  may  be  regarded  as  annulled.  A  right  with- 
out a  remedy  is  as  if  it  were  not.  For  every  beneficial  purpose 
it  may  be  said  not  to  exist.  It  is  well  settled  that  a  state  may 
disable  itself  by  contract  from  exercising  its  taxing  power  in  par- 
ticular cases.  It  is  equally  clear  that  where  a  state  has  authorized  a 
municipal  corporation  to  contract  and  to  exercise  the  power  of  local 
taxation  to  the  extent  necessary  to  meet  its  engagements,  the 
power  thus  given  cannot  be  withdrawn  until  the  contract  is  satis- 
fied. The  state  and  the  corporation,  in  such  cases,  are  equally 
bound.  The  power  given  becomes  a  trust  which  the  donor  cannot  an- 
nul, and  which  the  donee  is  bound  to  execute  ;  and  neither  the  state 
nor  the  corporation  can  any  more  impair  the  obligation  of  the  con- 
tract in  this  way  than  in  any  other.  The  laws  requiring  taxes  to 
the  requisite  amount  to  be  collected,  in  force  when  the  bonds  were 
issued,  are  still  in  force  for  all  the  purposes  of  this  case.  The  Act 
of  18G3  is,  so  far  as  it  affects  these  bonds,  a  nullity.  It  is  the  duty 
of  the  city  to  impose  and  collect  the  taxes  in  all  respects  as  if  that 
act  had  not  been  passed.  A  different  result  would  leave  nothing 
of  the  contract  but  an  abstract  right,  —  of  no  practical  value, — 
and  render  the  protection  of  the  Constitution  a  shadow  and  a  de- 
usion. 

Where  there  is  a  special  provision  for  the  levy  and  collection 
of  taxes  for  the  payment  of  such  bonds,  the  bondholder  may  re- 
quire the  enforcement  of  this  provision  without  first  obtaining  ex- 
ecution and  attempting  to  enforce  it.1  Judgment  must,  however, 
be  obtained  upon  the  bonds,  so  as  to  establish  the  validity  and 
amount  of  the  debt.2  A  demand  should  then  be  made  upon  the 
municipal  corporation  to  perform  its  duty  in  levying  the  necessary 
tax  and  making  payment.3 

301.  A  state  can  no  more  impair  an  existing  contract  by 

1  Knox  County  v.  Aspinwall,  24  How.  18  Wall.  83,  92  ;  Bath  County  v.  Amy,  13 
376  ;  Benbow  v.  Iowa  City,  7  Wall.  313.  Wall.  244. 

2  Heine    v.  Levee   Commissioners,    19  3  Dillon  on  Municipal  Bonds,  p.  58. 
Wall.  655 ;  Town  of  Queensbury  v.  Culver, 

280 


ENFORCEMENT    OF   MUNICIPAL   BONDS.  [§  302. 

a  constitutional  provision  than  by  a  legislative  act ;  both  are 
within  the  prohibition  of  the  national  Constitution.1  A  constitu- 
tional provision  of  a  state  so  limiting  the  rate  of  taxation  which 
municipal  corporations  may  exercise  as  to  prevent  their  making 
the  payment  of  the  interest  or  principal  of  bonds  previously  is- 
sued, under  statutes  authorizing  the  levy  of  sufficient  taxes  for 
that  purpose,  is  invalid  and  inoperative  to  the  same  extent  that  a 
statute  to  the  same  effect  would  be.  The  Constitution  of  Arkan- 
sas2 provided  that  "no  county  shall  levy  a  tax  to  exceed  one 
half  of  one  per  cent,  for  all  purposes,  but  may  levy  an  additional 
one  half  of  one  per  cent,  to  pay  indebtedness  existing  at  the  time 
of  the  ratification  of  this  Constitution."  But  this  was  held  hot  to 
impair  or  lessen  in  any  degree  the  obligation  of  a  previous  statute 
under  which  municipal  bonds  were  issued  and  by  which  the  levy 
of  a  special  tax  of  sufficient  amount  to  meet  the  bonds  was  au- 
thorized.3 "  It  is  no  answer,"  said  Caldwell,  J.,  "  to  say  that  the 
present  Constitution  does  not  utterly  destroy  the  right  given  by 
the  act  under  which  the  bonds  were  issued ;  that  a  limited  tax 
may  still  be  levied.  If,  by  any  subsequent  act  of  the  state,  the 
rate  could  be  limited  to  five  mills,  it  could  be  limited  to  one,  or 
taken  away  altogether."  The  court  remark  upon  the  excessive 
amount  of  taxes  that  would  be  required  in  the  case  before  it 
to  meet  the  obligations  of  the  county  ;  but  while  suggesting  to 
the  creditors  the  expediency  of  reducing  the  volume  of  indebted- 
ness, declared  this  to  be  a  matter  between  the  county  and  its 
creditors,  over  which  the  court  had  no  control ;  and  accordingly 
directed  a  peremptory  writ  of  mandamus  for  the  levy  and  collec- 
tion of  a  tax  sufficient  to  meet  the  interest  and  principal  of  the 
bonds.4 

302.  Mandamus    is  the    proper    remedy  to  compel  a  mu- 
nicipal corporation  to  appropriate  moneys  already  in  its  treas- 
ury to  tin-  payment  of  its  bonds,  or  to  levy  such  tax  as  may  be 
ary  lor  that  purpose/"'     This  writ  may  be  issued  in  all  cases 

1  Gunn  '■.  Barry,  15  Wall.  610,  623.  note  to  United  States  v.  Miller  County,  l 

'•;  Const.  1874,  art.  \vi.  §  0.  Dill.  233. 

8  Uniti-.l  States  y.  Jefferson  County,  U.  4  Ami  Bee  United   States  w.Countyof 

S   I     I     for  the  Eastern   Districl  of   Ark.  Clark,  U.  S.  Supreme  Court,  1878,  5  Re> 

7    Am.    I,:i.\    Bee.    154,    tor  Sept.   1S78;  6      porter,  131. 

Reporter,  486  j  7  Cent  Law  Jour. ;  S.  C.        "  Walkleyr.City  of  Muscatine,  6  Wall. 

281 


§  303.]  MUNICIPAL   BONDS   IN   AID    OF   RAILROADS. 

to  compel  the  performance  of  some  official  or  corporate  act  by  a 
public  officer  or  corporation,  when  there  is  no  other  adequate  rem- 
edy, and  the  right  to  such  performance  is  clear.  It  is  also  the 
proper  remedy  to  compel  the  delivery  of  bonds  which  a  munici- 
pality haying  the  power  to  issue  has  contracted  to  deliver  in  aid 
of  a  railroad.1 

This  is  not  only  the  proper  but  the  only  remedy  to  compel  the 
performance  of  the  duty  of  collecting  taxes  and  paying  munic- 
ipal bonds.  The  Supreme  Court,  even  in  an  exceptional  case, 
where  the  process  of  mandamus  had  proved  ineffectual  for  a  pe- 
riod of  fourteen  years,  on  account  of  successive  resignations  of  mu- 
nicipal officers,  refused  to  exercise  equity  jurisdiction  to  compel 
payment.2  To  enforce  a  bond  given  by  a  county  in  behalf  of  a 
township  within  the  county,  mandamus  will  be  issued  against  the 
county  or  its  proper  officers  to  compel  the  levy  and  collection  of 
a  tax  in  accordance  with  the  provisions  of  the  law  under  which 
the  bonds  were  issued.3 

303.  A  mandamus  does  not  confer  power  upon  those  to 
whom  it  is  directed.  It  only  enforces  the  exercise  of  power  al- 
ready existing,  when  its  exercise  is  a  duty.  Thus  if  a  municipal- 
ity has  exercised  its  power  of  taxation  to  the  full  extent  of  its  au- 
thority the  court  cannot  by  mandamus  order  the  levying  of  a  fur- 
ther tax.  There  may  be  some  other  remedy  for  enforcing  the  debt 
against  it  in  such  case,  but  at  any  rate  this  remedy  does  not  apply.4 

Mandamus  may  also  be  used  to  enforce  ordinary  county  war- 
rants ;  but  inasmuch  as  such  warrants  are  payable  out  of  the  ordi- 

481;  State  of  Ohio  v.  Board  of  Education  107;  Heine  v.  Levee  Commissioners,  19 

of    Perrysburg   Township,  27   Ohio   St.  Wall.  655.    In  the  absence  of  a  statute  to 

96  ;  Cincinnati,  Wilmington  &  Zanesville  the  contrary,  the  writ  of  mandamus  abates 

R.  R.  Co.  v.  Clinton  County,  1   Ohio  St.  with  the  death,  resignation,  or  removal  of 

77  ;  Atchison,  Topeka  &  Sante  Fe'  R.  R.  the  officer  to  whom  it  is  directed. 

Co.  v.  Jefferson   County,  12  Kans.    127;  3  County  of  Cass  v.  Johnston,  95  U.  S. 

United  States  v.  County  Court  of  Vernon  360;  Jordan  v.  Cass  County,  3  Dill.  185  ; 

County,  3  Dill.  281.  County  of  Cass  v.  Shores,  95  U.  S.  375. 

1  New  Haven,  Middletown  &  Williman-  i  United  States  v.  County  of  Clark,  95 
tic  R.  R.  Co.  v.  Town  of  Chatham,  42  U.  S.  769  ;  Supervisors  v.  United  States, 
Conn.  465;  People  v.  Cline,  63  111.  394;  18  Wall.  71.  United  States  v.  Mayor,  &c. 
Union  Pacific  R.  R.  Co.  v.  Commissioners  of  City  of  New  Orleans,  2  Woods,  230; 
of  Davis  County,  6  Kans.  256 ;  in  re  Ham-  United  States  v.  Miller  County,  4  Dill, 
ilton  &  North  Western  Ry.  Co.  39  Q.  B.  233  ;  Vance  v.  City  of  Little  Rock,  30  Ark. 
Upper  Canada,  193.  435  ;  State  v.  Walker,  Supreme  Court  of 

2  Pees  v.  City  of  Watertown,  19  Wall.  Mo.  Oct.  T.  1878,  7  Cent.  L.  J.  390. 

282 


ENFORCEMENT    OF   MUNICIPAL   BONDS.  [§  304. 

nary  revenues  of  the  county,  and  are  not,  like  the  negotiable  bonds 
of  a  county,  expressly  provided  for  by  a  special  tax,  the  writ  can- 
not command  the  levying  of  a  tax  specially  for  the  payment  of 
such  warrants,  but  can  only  command  the  proper  officers  to  dis- 
charge the  duty  they  owe  by  charter  or  by  statute  to  the  warrant- 
holders.1 

304.  A  writ  of  mandamus  issued  by  the  Circuit  Court  of 
the  United  States  for  the  collection  of  a  tax  cannot  be  inter- 
fered with  or  obstructed  by  the  courts  or  the  legislature  of  the 
state  in  which  the  tax  is  to  be  collected.  It  does  not  matter  that 
prior  to  the  application  for  the  mandamus  a  court  of  the  state  had 
perpetually  enjoined  the  proper  officers  against  making  such  levy; 
for  the  mandamus,  when  so  issued,  is  regarded  as  a  writ  necessary 
to  the  jurisdiction  of  the  federal  court  which  had  previously  at- 
tached, and  to  enforce  its  judgment,  and  in  such  case  the  state 
court  cannot  be  regarded  as  in  prior  possession  of  the  case.2  If 
the  officers  obey  the  state  court  in  such  case  and  refuse  to  levy 
and  collect  the  tax,  the  federal  court  will  attach  them  for  con- 
tempt and  punish  them.3 

Municipal  and  county  officers  who  disobey  a  writ  of  mandamus 
requiring  them  to  levy  a  tax  to  pay  judgments  against  the  munici- 
pality or  county  are  also  liable  to  damages  for  the  non-perform- 
ance of  this  duty.  But  the  measure  of  such  damages  is  not  the 
amount  of  the  claim  ;  4  and  in  fact,  only  nominal  damages  and 
costs  seem  to  be  recoverable.5  Judge  Drummond,  in  the  Circuit 
Court  of  the  United  States,  while  feeling  compelled  by  the  de- 
cisions of  the  Supreme  Court  to  allow  only  nominal  damages,  said 
that  if  left  free  to  adopt  his  own  view  it  would  be  to  allow  the 
plaintiff  the  interest  upon  the  money  that  would  have  been  col- 
lected, if  the  defendants  had  performed  their  duty.     "  Under  the 

1   Supervisors  v.  United  States,  18  Wall,  have  been  in  consequence  of  ignorance,  in- 

71;   Dinted   States  v.  Vernon  County,  2  advertence,  or  mistake  on  the  part  of  the 

Cent.  L.J.  771.  oilicers,  although  it  does  not  exactly  ap- 

-  Biggs  v.  Johnson  County,  6  Wall,  pear  how,  or  under  what,  circumstances, 
166;  \rauce  '•.  City  of  Little  Rock,  30  that  inference  was  drawn.  Per  Drum- 
Ark.  435, 452.  mond,  J.,  in  Newark  Savings  Institution 

8  United   States   v.    Silverman,  4    Dill.  v.  Panhorst,  7  Biss.  99. 
224,  •'■  Newark   Savings   [nstitution  v.  Pan 

■  Dow  ^.Humbert,  91    U.  8.  294.    In  hurst,  supra.     In  this  case  the  judgment 

e  the  court  assumed  that  it  might  wa 

-js:; 


§  305.]  MUNICIPAL    BONDS   IN   AID    OF   RAILROADS. 

decisions  of  the  Supreme  Court,"  added  the  judge,  "these  judg- 
ments against  municipal  corporations,  where  people  do  not  choose 
to  pay  them,  are  not  very  potential.  It  was  held  that  where  the 
laws  of  a  state  declare  that  there  can  be  no  execution  against  the 
property  of  a  municipal  corporation,  the  federal  courts  are  with- 
out power  to  collect  judgments  by  the  imposition  of  taxes,  al- 
though that  may  be  the  only  resource.1  And  now  it  has  been 
decided,  substantially,  that  the  officers  of  such  corporations  are 
not  liable  for  more  than  nominal  damages  if  they  refuse  to  per- 
form the  duty  which  the  law  imposes  on  them.  The  result  is, 
judgments  can  be  obtained  in  the  courts  against  these  municipali- 
ties, upon  the  bonds  or  coupons  they  have  issued,  and  their  obli- 
gations construed  with  the  greatest  rigor;  but  after  judgments, 
and  when  it  is  attempted  to  make  their  property  available  to  sat- 
isfy them,  then  arises  the  real  difficulty  of  the  case,  in  the  effort 
to  overcome  which  the  old  legal  maxim,  that  there  is  no  wrong 
without  a  remedy,  seems  sometimes  to  be  reversed." 

305.  The  holder  of  municipal  bonds  is  not  limited  to  the 
special  tax  provided  for  in  the  act  authorizing  the  issue  of  the 
bonds,  but  may  look  to  the  funds  of  the  county  raised  by  general 
taxation,  unless  the  act  expressly  provides  that  the  bonds  shall 
not  be  paid  in  any  other  manner.2  Thus,  where  bonds  in  aid  of 
a  railroad  were  issued  pursuant  to  a  law  which  authorized  a  levy 
of  a  special  tax  "  not  to  exceed  one  twentieth  of  one  per  cent, 
upon  the  assessed  value  of  taxable  property  for  each  year,"  which 
was  a  provision  wholly  inadequate  to  meet  the  interest  of  the 
bonds,  Mr.  Justice  Strong,  speaking  for  the  Supreme  Court,  said: 
"It  is  incredible  that  the  legislature  intended  to  deny  to  the  pur- 
chasers of  the  bonds  any  right  to  look  for  payment  beyond  such 
a  meagre  provision  ;  or,  if  it  was  so  intended,  that  the  intention 
would  not  have  been  expressed  in  precise  terms.  In  the  absence 
of  any  express  declaration  that  the  creditor's  right  to  claim  pay- 
ment shall  not  reach  beyond  the  fund  derived  from  the  small 
special  tax,  we  cannot  think  the  legislature  proposed  rendering 
the  bonds  unsalable  or  almost  worthless  in  the  hands  of  those  who 

1  Rses  v.  City  of  Watertown,  19  Wall,  pervisors  v.  United  States,  18  "Wall.  71  ; 
107.  State  v.  Shortridge,  56  Mo.  126,  which  are 

2  United  States  v.  County  of  Clark,  95  not  inconsistent  with  this  proposition. 
U.S.  769;  S.  C.  96  U.  S.  211.     See  Su- 

284 


ENFORCEMENT    OF   MUNICIPAL   BONDS.  [§  305. 

might  be  so  unfortunate  as  to  hold  them.  Such  an  intention 
would  have  defeated  the  object  sought  to  be  secured  by  giving 
authority  for  their  issue.  Nor  can  we  think  that  the  legislature 
intended  to  set  a  trap  for  purchasers,  and  lead  them  to  suppose 
they  were  obtaining  valuable  securities,  when,  in  fact,  they  would 
obtain  what  was  worth  next  to  nothing.  The  statute  justifies  no 
implication  of  any  such  legislative  intention.  If  it  be  said  that 
the  legislature,  in  limiting  the  special  tax  allowed,  contemplated 
no  issue  of  bonds  beyond  what  one  twentieth  of  one  per  cent, 
would  pay,  and  did  not  anticipate  the  improvidence  of  purchasers 
who  might  buy  bonds  issued  in  excess  of  that  sum,  it  may  be  an- 
swered that  still  a  larger  issue  was  in  fact  authorized." 

It  is  the  general  rule  in  the  United  States  that  debts  incurred 
by  or  in  the  name  of  a  public  or  quasi  corporation,  under  legisla- 
tive authority,  cannot  under  any  circumstances  be  enforced  against 
the  private  property  of  the  inhabitants,1  although  the  inhabitants 
of  towns  in  New  England  are  personally  liable  for  judgments 
against  town  corporations.2  Consequently  bonds  issued  in  pursu- 
ance of  a  statute  authorizing  county  courts  to  issue  bonds,  in  the 
name  of  the  county,  on  behalf  of  unincorporated  townships  voting 
the  aid,  cannot  be  enforced,  either  against  the  township  or  its  in- 
habitants ;  but  judgment  may  be  recovered  against  the  county 
issuing  the  bonds,  and  although  it  cannot  be  enforced  against  the 
county  or  its  property,  or  its  tax-payers  at  large,  the  county  court 
may  be  compelled  by  mandamus  to  levy  and  collect  a  tax  to  pay 
the  same.3 

1  Kces  v.  City  of  Watertown,  19  Wall.     §§  446,  687,  693  n. ;  Beardsley  v.  Smith, 
107  ;  Jordan  v.  Cass  County,  3  Dill.  185.       16  Conn.  368. 

2  Dillon   on    Municipal    Corporations,         3  Jordan  v.  Cass  Count v,  3  Dill.  185. 

285 


CHAPTER  VIII. 

PROMISSORY  NOTES  AND  UNSECURED  BONDS    OF    CORPORATIONS. 

I.  Promissory  notes  of  corporations,  306-  I  II.  Unsecured     bonds     of     corporations, 
311.  I       312-31G. 

I.  Promissory  Notes  of  Corporations. 

306.  Corporations,  except  as  restrained  by  express  pro- 
visions, or  by  necessary  implications,  may  use  any  form  of 
security,  or  any  kind  of  acknowledgment  of  indebtedness  that  an 
individual  may  use.1 

Where  the  nature  and  character  of  the  business  of  a  corpora- 
tion warrant  the  use  of  ordinary  negotiable  instruments,  such  as 
promissory  notes  and  bills  of  exchange,  the  company  has  an  im- 
plied authority  to  issue  them.  In  the  United  States  this  implied 
authority  is  held  to  belong  to  all  ordinary  commercial  corporations, 
when  used  for  proper  corporate  purposes  ; 2  yet  in  England  the 
courts  have  at  different  times  denied  the  power  to  almost  all  cor- 
porations,3 except  those  whose  business  is  banking,  or  some  kind 
of  financial  enterprise  which  necessarily  involves  the  making  or 

i  Pusey  v.  New  Jersey  R.   R.  Co.  14  N.  Y.  3  "Wend.  (N.  Y.)  94  ;  Clark  v.  Far- 
Abb.  Pr.  X.  S.  434.  mers'  Woolen  Mfg.  Co.  15  lb.  256  ;  Smith 

2  Mossy.  Averell,  ION.  Y.  449,  457  ;  01-  v.  Eureka    Flour    Mills   Co.    6     Cal.    1; 

cott  v.  Tioga  R.  R.  Co.  27  lb.  546.     "  No  Richmond,  Fredericksburg  &  Potomac  R. 

question  is  better  settled  upon  authority  R.  Co.  v.  Snead,  19  Gratt.  (Va. )  354. 
than  that  a  corporation,  not  prohibited  by         3  Bateman  v.  Mid- Wales  Ry.  Co.  L.  R. 

law  from  doing  so,  and  without  any  ex-  1  C.  P.  499  ;  Peruvian  Ry.  Co.  v.  Thames 

press  power  in  its  charter  for  that  purpose,  &   Mersey  M.  Ins.  Co.  L.  R.  2  Ch.  617; 

may  make  a  negotiable  promissory  note,  Broughton  v.  Manchester  W.  Works  Co. 

payable  either  at  a  future  day  or  upon  de-  3  B.  &  A.  1  ;  East  London  W.  Works  Co. 

mand,  when  such  note  is  given  for  any  of  v.   Bailey,   4    Bing.    283  ;    Dickinson    v. 

the  legitimate  purposes  for  which  the  com-  Valpy,  10  B.  &  C.  128;  Burmester  v.  Nor- 

pany  was  incorporated."    The   American  ris,  6  Ex.  796;  Steele  v.  Harmer,  14  M.  & 

courts  have  fully  established  this  principle,  W.  831  ;  4  Ex.  1  ;  Bramah  v.  Roberts,  3 

and  from  general  considerations  of   policy  Bing.  N.  C.  963  ;  Thompson  v.  Universal 

and  of  law   it   must  be  regarded  as  cor-  Salvage    Co.    1    Ex.    694.     See,  however, 

rect.    Barker  v.  Mechanic  Fire  Ins.  Co.  of  Moseley  Green  Coal,  &c.  Co.  in  re,  4  De 

286  G.,  J.  &  S.  756. 


PROMISSORY   NOTES   OF   CORPORATIONS.  [§  307. 

negotiating  of  negotiable  instruments.1  In  some  cases  where  such 
a  power  cannot  be  inferred  from  the  nature  of  the  business,  it  is 
conferred  by  implication  from  the  general  words  of  the  charter  or 
the  articles  of  association.2  Thus  the  memorandum  of  association 
of  a  company  formed  for  the  purpose  of  purchasing  a  concession 
from  the  government  of  Peru  for  the  construction  of  a  railway 
contained  the  provision,  that  "  in  order  to  the  attainment  of  the 
main  object  of  the  company  they  may  do,  either  in  the  United 
Kingdom,  or  Peru,  or  elsewhere,  whatsoever  they  from  time  to 
time  think  incidental  or  conducive  thereto."  It  was  held  that 
this  language  was  wide  enough  to  authorize  the  company  to 
make  negotiable  instruments.  "  It  is,  I  think,"  said  Lord  Cairns, 
L.  J.,  "  beyond  all  possibility  of  dispute,  that,  if  they  think  it 
incidental  or  conducive  to  the  attainment  of  the  concession,  when 
the  instalments  become  or  are  about  to  fall  due,  in  place  of  mak- 
ing calls  on  their  shareholders,  they  should  give  a  bill  of  ex- 
change, payable  at  a  future  day,  for  the  amount  of  the  instal- 
ments, they  may  do  so."3 

307.  The  English  decisions  are  not  altogether  uniform  in 
this  matter,  for  while  there  are  a  few  decisions  which  really  rest 
upon  the  principle  that  a  corporation  may  make  such  ordinary 
negotiable  paper  as  is  incidental  to  the  nature  of  its  business,4 
yet  the  cases  generally  are  the  other  way.  Thus,  in  Bateman  v. 
Mid-  Wales  Railway  Company?  the  question  was  whether  a  rail- 
way company  could  lawfully  bind  itself  by  accepting  a  bill  of 
exchange.  Earl,  C.  J.,  delivering  the  judgment,  said:  "I  am  of 
opinion  it  cannot.  The  bill  of  exchange  is  a  cause  of  action,  a 
contract  by  itself,  which  binds  the  acceptor  in  the  hands  of  any 
indorsee  for  value ;  and  I  conceive  it  would  be  altogether  contrary 
to  the  principles  of  the  law  which  regulates  such  instruments  that 
any  should  be  valid  or  not,  according  as  the  consideration  between 
the  original  parties  was  good  or  bad,  or  whether,  in  the  ease  oi  a 
corporation,  the  consideration  in  respect  of  which  the  acceptance 
is  given  is  sufficiently  connected  with  the  purposes  for  which  the  ac- 

i  General  Estates  Co.  in  re,  L.  II.  .'J  01).        8  Peruvian   Ry.  Co  v.  Thames  >^   Mer- 
758,761;  Land   Credit  Co.  of  Ireland  in     sey  M.  Ins.  Co.  supra, 
,,     I,    |;.  i  Ch.  460.  '   Moseley    Ciecn  (\>:il   >^    ('<>kr    Co.  in 

a  Peruvian  Ry. Co. v. Thames  &  Mersey     re,4  De  G.,J.  &  S.  756;  Peruvian  Ry.Co. 
M.  I,,-.  Co.  L.  R.  2  Ch.  017,  624.  v.  Thames  &  Mersey  M,  [ns.  Co.  supra. 

•'•  L.  R.  I  C.  I'.  499,  509. 

287 


§  808.]  PROMISSORY   NOTES    AND    UNSECURED   BONDS. 

ceptors  are  incorporated.  It  would  be  inconvenient  to  the  last  degree 
if  such  an  inquiry  could  be  gone  into.  Some  bills  might  be  given 
for  a  consideration  which  was  valid,  as  for  work  done  for  the  com- 
pany, and  others  as  a  security  for  money  obtained  on  loan  beyond 
their  borrowing  powers.  It  would  be  a  pernicious  thing  to  hold 
that,  in  respect  to  the  former,  the  corporation  might  be  sued  by 
an  indorser,  but  in  respect  of  the  latter,  not." 

There  is  no  question,  however,  that  corporations  of  all  kinds 
may  draw  checks  in  the  usual  course  of  business.  This  power  is 
necessary  for  every  corporation,  and  being  necessary,  is  implied.1 

A  distinction  is  taken  between  bills  and  notes,  by  a  corporation 
having  no  power  to  borrow,  given  in  its  ordinary  business,  as  for 
instance  in  the  purchase  of  property  essential  for  its  use,  and  bills 
and  notes  given  for  actual  loans  of  monejr.  In  like  manner,  an 
existing  debt  may  be  paid  by  means  of  bills  of  exchange,  when 
the  debt  could  not  be  created  originally  in  that  way.2  "  Borrow- 
ing and  lending,"  says  Stuart,  V.  C,  "  are  things  perfectly  well 
understood,  and  although  the  procuring  of  money  by  means  of  a 
bill  of  exchange  confers  the  same  benefit  on  the  person  who  pro- 
cures it  as  if  he  were  to  borrow  the  amount,  yet  it  is  impossible  to 
consider  transactions  upon  bills  of  exchange  given  in  this  manner 
as  borrowing  and  lending  within  the  meaning  of  the  company's 
articles  of  association.  It  has  been  well  decided  that  a  balance 
due  a  bank  by  a  company  which  keeps  an  account  with  it,  and  has 
had  the  benefit  of  the  money,  is  a  debt,  but  not  a  loan  in  the 
proper  sense." 

308.  Accommodation  paper.  —  As  a  corollary  to  the  prop- 
osition that  a  corporation  may  make  negotiable  paper,  it  follows 
that  such  paper,  though  made  for  accommodation,  is  binding  upon 
the  maker  in  the  hands  of  a  holder  in  good  faith  for  value.  It 
may  not  be  within  the  scope  of  the  corporate  powers  to  make  ac- 
commodation paper ;  but  having  a  general  power  to  make  negoti- 
able paper,  the  doctrine  of  ultra  vires  does  not  apply  when  in  a 
particular  case  a  corporation  abuses  this  general  power,  and  issues 
accommodation  paper  which  comes  into  the  hands  of  a  holder  for 

i  Waterlow  v.  Sharp,  L.R.  8  Eq.  501  ;  2  Cefn  Cilcen  Mining  Co.  in  re,  L.  R.  7 

Serrell  v.  Derbyshire,  &c.  Ry.  Co.  9  C.  B.  Eq.  88;  and  see  Waterlow  v.  Sharp,  L.  R. 

811.  8  Eq.  501. 
288 


PROMISSORY    NOTES   OF   CORPORATIONS.       [§§  309,  310. 

value  -without  knowledge  of  such  abuse.1  The  corporation  is  es- 
topped from  setting  up  the  defence  of  ultra  vires  in  such  case, 
because  it  has  virtually  represented  that  the  paper  was  given  for 
some  legitimate  purpose,  and  having  the  general  power  to  give 
negotiable  paper,  a  purchaser  cannot  be  presumed  to  know  that 
any  particular  obligation  was  given  for  an  unauthorized  purpose.2 

309.  Paper  given  to  enable  a  corporation  to  prosecute  an 
unauthorized  business.  —  The  same  reasoning  applies  as  well 
to  obligations  given  by  a  corporation  for  money  borrowed  to  ena- 
ble it  to  prosecute  a  business  which  it  had  no  power  to  engage 
in.  The  corporation  having  the  general  power  to  borrow  money, 
it  would  be  pressing  the  doctrine  of  ultra  vires  to  an  extent  not 
to  be  tolerated,  to  allow  it  to  evade  the  payment  of  the  money 
on  the  ground  that  it  expended  the  money  in  prosecuting  an 
unauthorized  business,  even  though  the  lender  knew  the  money 
would  be  so  expended,  provided  the  business  itself  be  free  from 
any  intrinsic  immorality  or  illegality.3 

310.  Of  course  if  the  holder  has  notice  that  the  instru- 
ment was  improperly  issued  by  the  corporation,  he  cannot  en- 
force it ;  and  such  notice  may  be  either  actual  or  constructive.  A 
limitation  in  the  power  of  the  corporation  in  respect  to  issuing  a 
security  imposed  by  statute  or  by  the  charter  of  the  company, 
must  be  taken  notice  of  by  every  person  dealing  with  it.  In  the 
leading  English  case  upon  this  subject,  Cockburn,  C.  J.,  deliver- 
ing the  judgment,  said:4  "'It  is  contended  that  the  plaintiffs, 
not  having  had  any  knowledge  of  the  want  of  such  authority,  are 

1  Monument  Nat.  Bank  v.  Globe  Works,  Olcott  v.  Tioga  R.  R.  Co.  27  N.  Y.  546  ; 

101    Mass.    57  ;  S.  C.  3  Am.  R.  322.    See,  State  Bank  v.  U.  S.  Pottery  Co.  34  Vt. 

also,  Farmers' &  Mechanics' Bank  n.  Em-  144;  Smead  v.  Indianapolis,  Pittsburg  & 

pire  Stone  Dressing  Co.  5  Bosw.  (N.  Y.)  Cleveland  11.  R.  Co.  11  Ind.  104. 

275;  Maitland  /•.Citizens'   Nat.  Bank   of  -  Bissell   v.  Michigan    South.  &  North. 

Baltimore,  40  Md.  540 ;  S.  C.  17  Am.  R.  Ind.  R.  R.  Cos.  22  N.  Y.  258,  289,  290,  per 

620;  Bank  of  Genesee  v.  Patchin  Bank,  13  Seldcn,  J. ;  City  of  Lexington  v.  Butler, 

N.  X".  809;  Merchants'  Hanking  Associa-  L4  Wall.  282. 

tionv.N.  Y.,&c  White L                  \.  V.  :;  Bradley  v.  Ballard,   55   111.   418  j    8 

505;  Centra]  Bank  v.  Empire  Stone  Dress-  Am.  1>.  C56. 

Co.  26  Barb,  IN.  V.)  23;  Morford  v.  '  Balfour  v,  Ernest,  5   C.  B.  N.  S.  601  ; 

Farmers'  Bank  of  £               County,  Il>.  28  L.J.  (C.  P.)  1 70,  quotation  Erom  latter 

:    Bridgeport    City    Bank   v.   Empire  report;  and  see    Hood  v.  New  JTork  &  N. 

Dre  ring  Co.  30  Barb.  (N.  T.)  121;  H.  R.  R.  Co.  22  Conn.  502. 

18  289 


§  311.]  PROMISSORY   NOTES   AND   UNSECURED   BONDS. 

entitled  to  treat  this  bill  as  a  bill  taken  from  a  partner  having  a 
general  power  of  drawing  bills,  and  which  might  be  considered  as 
drawn  for  partnership  purposes,  though,  in  fact,  it  was  drawn  by- 
one  partner  in  fraud  of  the  others.  There  is,  however,  this  dif- 
ference between  that  case  and  the  present  one,  that  then,  there 
would  be  no  reason  for  supposing  that  the  bill  was  not  given  for 
partnership  purposes,  whereas  here,  the  bill  was  taken  by  the 
plaintiffs  in  payment  of  a  debt,  for  the  discharge  of  which  they 
knew  it  was  not  within  the  general  scope  of  the  authority  of  the 
directors  of  this  society  to  draw  bills,  for  the  plaintiffs  must  have 
known  that  the  company  were  constituted  under  a  deed  of  settle- 
ment, to  which,  being  registered  pursuant  to  the  statute,  the 
plaintiffs  could  have  had  access,  and  the  case  which  has  been  re- 
ferred to  by  my  brother  Willes  shows  that  a  man  must  be  taken 
to  have  knowledge  of  the  contents  of  a  deed  of  this  kind." 

311.  Notes  under  corporate  seal.  —  Ordinary  promissory 
notes  and  other  instruments  usually  made  without  sealing,  when 
issued  by  corporations,  are  not  infrequently  issued  under  the  cor- 
porate seal.  The  seal  in  such  cases  is  practically  without  effect. 
It  does  not  affect  the  negotiability  or  the  validity  of  the  instru- 
ment.1 

A  note  signed  by  the  directors  or  other  officers  of  a  corpora- 
tion by  their  individual  names,  although  they  describe  themselves 
as  such  officers,  is  not  the  note  of  the  corporation  unless  it  pur- 
ports to  be  made  on  behalf  or  on  account  of  the  company.  Even 
the  affixing  of  the  corporate  seal  to  such  a  note  does  not  make  it 
the  note  of  the  corporation,  where  the  parties  do  not  otherwise  use 
terms  to  exclude  their  personal  liability.2  But  a  note  signed  by 
individual  officers  of  a  corporation  "  by  and  on  behalf  of  the  said 
society,"  was  held  to  be  binding  upon  the  company,  and  not  upon 
the  parties  who  signed  it.3  And  so  a  note  signed  by  individuals, 
"for"  a  corporation  named,  is  binding  upon  the  corporation  if 

1  Connecticut  Mut.  Life  Ins.  Co.  v.  The  note  in  this  case  was  as  follows  :  "We, 
Cleveland,  Columbus  &  Cincinnati  R.  R.  the  directors  of  the  Isle  of  Man  Slate  Co., 
Co.  41  Barb.  (N.  Y.)  9  ;  Halfordu.  Came-  limited,  do  promise  to  pay  J.  D.  £1,600, 
ron's  Coalbrook,  &c.  Ry.  Co.  16  Q.  B.  with  interest  at  6  per  cent,  till  paid,  for 
442;  Aggs  v.  Nicholson,  1  H.  &  N.  165;  value  received."  The  company's  seal  was 
Goodwin   v.   Robarts,  L.  R.  10   Ex.  337  ;  affixed. 

General  Estates  Co.  in  re,  L.  R.  3  Ch.  758.         3  Aggs  v.  Nicholson,  1  H.  &  N.  165. 

2  Dutton  v.   Marsh,  L.  R.  6  Q.  B.  361. 

290 


UNSECURED   BONDS   OF   CORPORATIONS.      [§§  312,  313. 

the  signers  had  authority  to  bind  it.  But  where  such  persons 
"  jointly  and  severally  "  promised  for  a  corporation,  these  words 
were  considered  as  fixing  the  undertaking  as  a  personal  one.1 

II.    Unsecured  Bonds  of  Corporations. 

312.  At  common  law  a  private  corporation  has  the  power 
to  issue  bonds  not  secured  by  mortgage,  for  any  purpose  for 
which  it  may  lawfully  contract  a  debt.  No  special  legislative 
authority  is  needed  unless  some  restriction  is  imposed  by  the  com- 
pany's charter,  or  by  general  enactment.  "  A  bond  is  merely  an 
obligation  under  seal.  A  corporation  having  the  capacity  to  sue 
and  be  sued,  the  right  to  make  contracts  under  which  it  may 
incur  debts,  and  the  right  to  make  and  use  a  common  seal,  a 
contract  under  seal  is  not  only  within  the  scope  of  its  powers,  but 
was  originally  the  usual  and  peculiarly  appropriate  form  of  cor- 
porate agreement."  2  Restrictions  upon  the  issuing  of  bonds  have 
been  imposed  in  some  states,  and  where  this  is  the  case  such  bonds 
can  be  issued  only  in  the  mode  and  for  the  purposes  authorized. 
Bonds  issued  in  disregard  of  such  statutes  are  void.3  They  may 
be  repudiated  not  only  by  the  corporation  itself,  but  by  a  subse- 
quent mortgagee  whose  mortgage  is  not  made  expressly  subject  to 
them. 

A  railroad  company  unless  restrained  by  statute  has  power  to 
contract  debts,  and  the  power  to  acknowledge  its  indebtedness  by 
making  bonds  under  its  seal.4  This  is  a  very  different  question 
from  that  which  relates  to  the  power  of  such  corporation  to  mort- 
gage its  property  without  legislative  authority. 

313.  A  corporation  having  the  power  to  borrow  money  for 
a  specific  purpose  has  the  right  to  issue  any  instrument  in  ac- 
knowledgment of  the  debt  which  the  parties  may  consider  conven- 
ient. It  may  issue  bonds  for  such  debt  without  the  aid  of  any 
statute  in  terms  conferring  the  power  to  issue  bonds.5  Such  cor- 
poration has  the  same  power  as  an  individual  to  issue  any  kind  of 
instrument  acknowledging   its  indebtedness   and  promising   pay- 

1   Bradlee  v.  Boston  Glass  Manufactory,  *  Commissioners  of  Craven  >■.  Atlantic 

16  Pick.  (Mass.)  847,  cited  approvingly  by  &  N.  C.  It.  R.  Co.  77  N.  C.  289. 

Bramwell,  B.,in  Aggs  v.  Nicholson, supra.  5  Miller  v.  N.  Y.  ft  Erie  R.  II.  Co.  18 

■    immonwealth   v.   Smith,    LO  Allen  How.  (N.  v.j  Pr.  874;  8  Abb.  Pr.    131  . 

(Ma-    i,  148,  per  Hoar,  J.  Dana  p.Bankof  U.  8.  5  \V.  ft  B.  (Pa.) 

8  Commonwealth  v.  Smith,  su/na.  223. 

291 


§  314.]  PROMISSORY   NOTES   AND   UNSECURED   BONDS.    , 

ment.  The  bonds  of  a  corporation  having  the  power  to  borrow, 
but  not  the  power  to  grant  a  mortgage  to  secure  the  loan,  are 
valid  although  the  mortgage  is  void.  In  such  case  when  it  is 
sought  to  enforce  the  bonds,  the  power  to  issue  them  is  all  the 
court  has  to  do  with,  and  the  company  is  liable  upon  them  with- 
out regard  to  the  mortgage.1 

A  statute  authorizing  a  railroad  company  to  borrow  money 
from  time  to  time  for  maintaining  and  working  the  railroad,  and 
to  pledge  the  lands,  tolls,  and  revenues,  and  to  make  bonds  or  de- 
bentures for  securing  the  payment  of  the  sums  borrowed,  does  not 
restrict  a  company  to  the  use  of  bonds  or  debentures  rather  than 
other  evidences  of  debt.2 

314.  A  statutory  bond  or  debenture  holder  in  England 
occupies  a  position  quite  different  from  that  of  a  mortgagee ;  while 
the  latter  has  a  lien  upon  the  tolls  and  traffic  receipts  of  the 
undertaking,  and  may  have  a  receiver  of  them  appointed  for  the 
purpose  of  paying  his  claim,  the  former  has  no  such  lien  or  right 
to  have  a  receiver  appointed.3  A  judgment  creditor  might,  prior 
to  the  Railway  Companies  Act  of  1867,  as  against  such  bond- 
holder, levy  his  execution  upon  the  personal  or  real  property  of  the 
company.4  Although  such  creditor  had  recovered  his  judgment 
upon  a  debenture  if  his  execution  was  paid  before  any  of  the 
other  bondholders  intervened,  he  might  keep  what  he  had  re- 
ceived. He  might  bring  a  suit  in  behalf  of  himself  and  all  other 
bondholders,  but  was  not  bound  so  to  do.  The  non-priority  clauses 
of  the  statute  were  regarded  as  applying  between  executions  and 
not  as  between  bonds.5 

An  English  company  owning  land  in  Italy  issued  bonds  or 
debentures  binding  their  "  estate,  property,  and  effects,"  and  it 
was  claimed  that  they  constituted  a  charge  upon  the  land,  and 
that  the  debenture  holders  could  restrain  a  sale  of  it  under  a  sub- 
sequent mortgage ;  but  the  master  of  the  rolls  held  them  to  be 
merely  bonds,  and  that  they  created  no  mortgage  or  lien ;  that 

1  Philadelphia  &  Sunbury  E.  E.  Co.  v.  Preston  v.  Corporation  of  Great  Yar- 
Lewis,  33  Pa.  St.  33.  mouth,  L.  R.  7  Ch.  App.  655. 

2  Commercial  Bank  of  Canada  v.  Great  4  Bowen  v.  Brecon  Ry.  Co.  L.  R.  3  Eq. 
Western  Ry.  Co.  of  Canada,  3  Moore  P.  541,548;  Eussell  v.  East  Anglian  E.  Co. 
C.  C.  (N.  S.)  295.  3  Mac.  &  G.  104,  151. 

3  Imperial  Mercantile  Credit  Associa.  v.  6  Imperial  Mercantile  Credit  Asso.  v. 
Newry  &  Armagh  Ey.  Co.  2  Ir.  Eq.  524 ;  Newry  &  Armagh  Ey.  Co.  2  Ir.  Eq.  524. 

292 


UNSECURED   BONDS   OF   CORPORATIONS.      [§§  315,  816. 

even  if  they  had  been  mortgages  they  could  not  be  preferred  to 
subsequent  mortgages  which  had  been  perfected  by  registry  ac- 
cording to  the  law  of  Italy,  although  the  mortgagees  had  notice, 
according  to  the  English  law,  of  the  prior  charge  ;  and  further, 
that  the  Italian  court  was  the  proper  forum  to  exercise  jurisdic- 
tion in  the  matter.1 

315.  Prohibition  against  issuing  notes  for  circulation  as 
money.  —  Bonds  of  a  canal  or  railroad  company  issued  in  the 
course  of  its  legitimate  business  do  not  fall  within  a  statutory 
prohibition  against  issuing  notes  for  a  circulating  medium  in  the 
similarity  of  a  bank  note,  the  intention  of  the  statute  being  to 
prohibit  the  exercise  of  banking  privileges.2  It  was  urged  that 
inasmuch  as  the  legislature  had  conferred  upon  the  canal  com- 
pany power  to  borrow  money  on  mortgage  to  enable  it  to  com- 
plete its  work,  this  authority  covered  the  whole  scope  of  power 
possessed  by  the  company,  and  it  could  not  issue  bonds  without 
such  mortgage  ;  and  it  was  insisted  that  the  parties  executing 
such  bonds  made  themselves  personally  liable.  But  the  Supreme 
Court  of  Pennsylvania  held  that  the  company  had  of  necessity 
the  right  to  enter  into  such  obligations  in  carrying  out  the  pur- 
poses of  the  corporation,  and  that  the  obligations  were  binding 
upon  it.3 

A  n  insurance  and  loan  company  which  was  forbidden  "  to  issue 
for  circulation  as  money  any  of  its  own  promissory  notes  in  the 
nature-  of  bank  notes  or  certificates  of  deposit  payable  to  bearer,  ' 
having  issued  certain  certificates  of  deposit  payable  to  order,  it 
was  found  as  a  fact  that  they  were  not  intended  for  circulation  as 
money.  After  an  indorsement  in  blank  by  the  payee,  they  in 
effect  became  payable  to  bearer;  and  it  was  admitted  in  point 
of  law  that  they  were  fully  negotiable;  but  it  was  decided  that 
tin-  issue  of  these  instruments  was  not  illegal,  and  that  therefore 
tli"  company  was  liable  upon  them.4 

316.    The  issuing  of  income  bonds  for  the  payment  of  the 

i  Norton   v.  Florence   Land  &   Public  :;  McMasters  v.  Reed,  supra. 

Works  Co.  2  \v.  l:.  123.  4  Mumfordv.  Am.  Life  Ins.  &  Trust  Co. 

a  m,  M              Reed,  l  Grant  (Fa.), 36;  4  N.  Y.  463. 

Bnbbard  <•.  New  V«rk,  &<•.  I;.];.  Co.  30 

,.  (N.  V.)  28G. 


§  316.]  PROMISSORY   NOTES   AND   UNSECURED   BONDS. 

interest  and  principal  of  which  the  income  of  a  railroad  company 
is  specifically  pledged,  does  not  debar  the  company  of  the  legal 
right  to  execute  a  mortgage  of  its  road  and  property  to  secure 
the  payment  of  other  bonds.  The  pledge  of  the  income  is  bind- 
ing upon  the  company,  but  is  no  incumbrance  upon  the  property 
itself,  which,  under  a  subsequent  mortgage,  may  be  taken  out  of 
the  possession  of  the  company  and  applied  to  the  payment  of  the 
mortgage  debt.1 

The  Central  Ohio  Railroad  Company  having  made  a  first  and 
second  mortgage  of  its  property  issued  certain  income  bonds, 
wherein  it  was  recited,  that  "for  the  punctual  payment  of  the 
interest  and  principal  of  said  obligations,  and  of  others  of  like 
tenor,  issued  or  to  be  issued,  in  preference  to  the  payment  of  div- 
idends on  the  capital  stock  of  said  company,  the  income  aris- 
ing from  the  road  and  its  appurtenances  is  hereby  specifically 
pledged  ;  "  subsequently  the  company  executed  a  mortgage  of  its 
whole  line,  and  was  about  to  issue  bonds  under  it,  when  the  hold- 
ers of  certain  of  the  income  bonds  filed  a  bill  to  restrain  the  sale 
of  the  mortgage  bonds.  It  was  contended  in  their  behalf  that 
the  company  could  not,  without  a  violation  of  their  own  obliga- 
tions, tantamount  to  fraud,  attempt  to  impair  the  unrecorded 
lien  on  their  property  by  placing  on  record  a  mortgage  designed 
to  secure  third  mortgage  bonds  to  be  paid  in  order  after  the  first 
and  second  mortgage  bonds  ;  and  therefore  that  the  company 
ought  to  be  restrained  from  issuing  the  third  mortgage  bonds, 
which,  in  the  hands  of  bond  fide  purchasers,  without  notice  of  the 
unrecorded  lien  of  the  income  bonds,  would  be  preferred.  The 
Court  of  Appeals  of  Maryland  held,  however,  that  fraud  could 
not  be  imputed  to  the  company,  in  consequence  of  the  issuing  of 
the  third  mortgage  bonds,  and  that  it  was  not  in  any  way  pre- 
cluded from  executing  such  subsequent  obligations.  The  terms  of 
the  income  bonds  were  declared  to  be  specific,  and  the  holders  of 
them  confined  to  the  preference  therein  set  forth.2 

i  Perkins  v.  Deptford  Pier  Co.  13  Sim.        2  Garrett  v.  May,  19  Md.  177 
277,281. 

294 


CHAPTER  IX. 


INTEREST   AXD   INTEREST    COUPONS. 


I.  The  contract  to  pay  interest,  317-320. 

II.  Negotiability  of  coupons,  321-326. 

III.  Order  of  payment  of  coupons,  327- 
331. 


IV.  Interest    on     overdue    coupons    and 
bonds,  332-336. 

V.  Suits  upon  coupons,  337-340. 


I.   The   Contract  to  pay  Interest. 

317.  The  terms  in  which  coupons  are  expressed  are  very- 
different.  Usually  they  are  in  the  form  of  express  promises  to  pay 
the  interest  due  at  fixed  times  to  the  bearer  at  a  place  designated.1 
In  such  case  the  instrument  is  a  complete  contract  in  itself,  and 
may,  when  consistent  with  the  terms  of  the  bond,  be  declared  on 
as  such  without  reference  to  the  bond.  But  sometimes  a  coupon 
is  merely  a  memorandum  of  the  interest  due,  and  of  the  time  and 
place  of  payment,  without  any  express  promise  of  payment.2  In 
such  case  the  coupon  is  not  a  complete  instrument  in  itself,  and 
can  be  declared  on  only  in  connection  with  the  bond.  Again,  a 
coupon  may  be  in  the  form  of  a  draft  for  the  interest  in  favor  of 
bearer.3  In  such  case,  however,  the  coupon  is  not  strictly  a  bill 
of  exchange.  It  is  not  intended  for  acceptance.  It  is  usually 
drawn  against  funds  deposited  to  meet  it,  and  is  therefore  more 
like  a  check.  If  such  a  coupon  be  construed  as  a  mere  token  or 
ticket  or  warrant,  indicating  the  time  when  and  the  place  where 
the  interest  is  due,  it  will  satisfy  the  terms  in  which  it  is  expressed, 
and  be  consistent  with  the  bond  and  the  purpose  for  which  the 
coupon  was  devised.4 

Whatever  be  the  form  of  the  coupon,  its  purpose  is  substan- 
tially the  same,  which  is  to  afford  to  the  holder  evidence  of  his 

i  As    it)    Thomson    v.   Lee    County,   3  93;  Arcnts  v.  Commonwealth,  18  Gratt. 

Wall.  327.  (Va.)  750. 

2  As  in  Woods  i'.  Lawrence  County,  1  4  Areuts  v.  Commonwealth,   18   Gratt. 

Black.  (Va.)   750,  771. 

8  Sheboygan  County  v.  Park)  r,  •'(  Wall. 


§  318.]  INTEREST    AND   INTEREST    COUPONS. 

right  to  demand  the  interest  according  to  the  provisions  of  the 
bond,  and  a  convenient  mode  of  collecting  it;  and  to  afford  to 
the  maker  of  the  bond  a  convenient  voucher  of  the  payment  of 
the  interest. 

The  contract  for  the  payment  of  the  interest  is  generally  fully 
defined  by  the  bonds,  while  the  coupon  for  the  interest  often 
expresses  the  contract  very  imperfectly.  When  such  is  the  case, 
the  instruments  necessarily  being  construed  together,  the  bond 
determines  what  the  contract  is.  A  coupon,  also,  which  in  terms 
differs  from  the  contract  contained  in  the  bond,  must,  by  construc- 
tion, be  made  consistent  with  that  contract;  and  in  this  connec- 
tion the  purpose  for  which  the  coupon  is  given  is  to  be  considered. 

Coupons  are  often  signed  by  a  printed  fac-simile  of  the  auto- 
graph of  the  maker  or  of  the  officer  empowered  to  execute  the 
bonds  ;  and  this  constitutes  a  legal  signature,  though  not  ex- 
pressly authorized  by  statute.1 

318.  Usury  laws  do  not  generally  apply  to  bonds  issued  by 
corporations.  They  are  expressly  excepted  from  the  operation  of 
the  statutes  in  several  states.2  In  England  debentures  may  be 
issued  at  a  discount,  and  the  holders  will  be  allowed  to  prove  for 
the  full  nominal  amount  in  proceedings  for  winding  up.3 

The  usury  laws  apply  to  corporations,  in  the  absence  of  special 
legislation,  to  the  same  extent  as  to  natural  persons,  and  corpora- 
tions cannot,  any  more  than  individuals,  legally  sell  their  bonds, 
bearing  the  highest  rate  of  interest,  at  a  discount,  for  the  purpose 
of  borrowing  money.4 

A  statute  authorizing  corporations  to  sell  their  bonds  at  a  dis- 
count may  have  no  application  to  foreign  corporations,  so  that  the 

1  Pennington  v.  Baehr,  48  Cal.  565 ;  In  several  other  states  and  territories 
McKee  v.  Vernon  County,  3  Dill.  210;  there  are  no  usury  laws.  See  Jones  on 
Lynde  v.  County,  16  Wall.  6.  Mortgages,  §  633. 

2  Alabama,  §  27 ;  Arkansas,  §  28  ;  Da-  3  Anglo-Danubian  Steam  Nav.  &c.  Co. 
kota  Territory,  §  32  ;  District  of  Colum-  in  re,  L.  R.  20  Eq.  339  ;  Foss  v.  Harbottle, 
bia,  §  34;  Florida,  §  35;  Indiana,  §38;  2  Hare,  461  ;  Regent's  Canal  Ironworks 
Iowa,  §  39 ;  Maine,  §  43 ;  Maryland,  §  44 ;  Co.  in  re,  24  W.  R.  687  ;  In  Blakely  Ord- 
Michigan,  §  46 ;  Minnesota,  §  47 ;  Mon-  nance  Co.  in  re,  8  Eq.  244,  the  Master  of 
tana  Territory,  §  50  ;  Nebraska,  §  51  ;  the  Rolls,  Romilly,  allowed  proof  for  only 
New  Hampshire,  §  53  ;  New  Jersey,  1  Rev.  the  sum  actually  advanced. 

1877,   p.  514;  Laws  1855,  p.  500;    New         4  Commissioners  of  Craven  v.  Atlantic  & 
York,  2  R.  S.  1875,  p.  1166 ;  Laws  1850,     N.  C.  R.  R.  Co. 77  N.  C.  289. 
ch.  172;  Vermont,  §  64;  Wisconsin,  §  67. 
296 


THE    CONTRACT    TO   PAY   INTEREST.  [§  319. 

same  provisions  as  to  interest  and  usury  apply  to  them  that  apply 
to  private  individuals.1 

A  special  clause  in  a  charter  authorizing  a  company  to  borrow 
money  on  such  terms  as  may  be  agreed  upon  by  the  parties  over- 
rides an  existing  general  law  upon  the  subject,  and  enables  it  to 
borrow  at  any  rate  of  interest.2 

Under  a  statute  authorizing  the  sale  of  corporate  bonds  at  less 
than  par  value,  there  can  be  no  ground  of  objection  to  an  exchange 
of  the  bonds  for  iron  rails.  It  could  make  no  difference  whether 
the  bonds  were  sold  at  a  reduced  rate  and  the  iron  rails  bought  for 
cash,  or  the  bonds  exchanged  directly  for  the  iron  rails  ;  the  trans- 
action might  easily  be  made  to  assume  either  form.3 

When  a  statute  limits  the  rate  of  interest  a  corporation  may  pay 
for  loans,  but  does  not  provide  for  the  times  of  payment,  it  is  a 
proper  exercise  of  the  power  to  make  the  interest  payable  semi- 
annually. So  long  as  the  specified  rate  be  not  exceeded,  the  pay- 
ment of  the  interest  may  be  regulated  according  to  the  usual  course 
of  dealing  in  borrowing  money.4 

319.  The  law  of  the  place  where  a  bond  is  made  payable, 
as  a  general  rule,  determines  whether  it  is  usurious  or  not.  If  it 
be  not  usurious  by  that  law,  a  plea  of  usury  cannot  be  sustained, 
unless  it  alleges  that  the  place  of  payment  was  inserted  as  a  shift 
or  device  to  evade  the  law  of  the  place  where  the  bond  was 
made.5 

When  the  rate  of  interest  at  the  place  where  the  bonds  are 
made  differs  from  that  at  the  place  where  they  are  made  pay- 
able, the  parties  may  stipulate  for  either  rate,  and  their  contract 
will  govern.6 

The  laws  of  the  state  where  the  corporation  was  organized 
and  issued  its  bonds  determine  the  cjuestion  of  usury  as  to  such 
bonds,  in  a  suit  in  the  same  state  to  enforce  them,  although  they 

I    McGtt  ;ort>.  Covington  &  Lexington  6  Junction  R.  It.  Co.  v.  Bank  of   A^li- 

R.R.]  Dis.  (Ohio)  509.  land,  12    Wall.  226;  Butler  v.   Myer,  17 

a  Morrison  v.  Eaton  &  Hamilton  R.R.  Ind.77;  Butleru.  Edgerton,  L5  Lnd.  L5. 

Co.  i  *  lnd.  110.  ,;  l  Jones  on   Mortga 

Piqua  &  lnd.  R  B.  Cromwell  v.  County  of  Sac,  96  1  .  B.  51, 

Co.  10  Ohi  02  ;  Miller  v.  Tiffany,  l  Wall,  S 

*  Coe  v.  Columbns,  Piqua  &  [nd.  K   B. 
Co.  10  Ohio  St. 

297 


§§  320,  321.]         INTEREST   AND   INTEREST    COUPONS. 

are  made  payable  in  another  state,  whose  laws  are  different.1  The 
statute  of  such  other  state  where  the  bonds  are  made  payable 
might  control  in  an  action  upon  the  bonds  in  that  state. 

II.    Negotiability  of  Coupons. 

320.  Coupons  •which  promise  payment  to  bearer  are  in  le- 
gal effect  promissory  notes  by  the  law  merchant,  and  possess  all 
the  attributes  of  negotiable  paper.2  The  purchaser  of  such  cou- 
pons is  not  an  assignee  of  the  causes  of  action,  but  he  acquires 
title  by  delivery,  and  the  promise  to  bearer  is  a  promise  to  him- 
self directly.3  Even  when  the  coupons  themselves  do  not  purport 
to  be  negotiable,  if  the  bonds  to  which  they  belong  are  nego- 
tiable, the  coupons  are  negotiable  also,  so  long  as  they  are  not 
detached  from  the  bonds.  The  title  to  negotiable  interest  cou- 
pons passes  from  hand  to  hand  by  mere  delivery,  and  a  transfer 
of  possession  is  presumably  a  transfer  of  title,  but  does  not  im- 
port a  guaranty  of  payment.4 

321.  Coupons  are  not  rendered  non- negotiable  by  the  fact 
that  they  are  not  made  payable  to  a  particular  person.5  —  Such 
coupons  are  to  be  taken  in  connection  with  the  bonds  to  which 
they  are  annexed,  and  though  not  themselves  negotiable  instru- 
ments by  the  law  merchant,  they  follow  the  instrument  to  which 
they  are  attached,  and  when  that  is  negotiable  the  coupons  are 
negotiable.6     The  obligation  to  pay  the  interest  is  to  be  found 

1  Commissioners  of  Craven  v.  Atlantic  &  Biss.  98 ;  Myers  v.  York  &  Cumberland  R. 
N.  C.  R.  R.  Co.  77  N.  C.  289.  R.  Co.  43  Me.  232. 

2  Mercer  County  v.  Hacket,  1  Wall.  3  Cooper  v.  Town  of  Thompson,  13 
83;  Thomson  v.  Lee  County,  3  Wall.  Blatchf.  434,437;  City  of  Lexington  v. 
327  ;  Aurora  City  v.  West,  7  Wall.  105  ;  Butler,  14  Wall.  282,  283. 

Clark  v.  Iowa  City,  20  Wall.  583 ;  Ken-  4  Ketchum  v.  Duncan,  96  U.  S.  659. 

nard  v.  Cass  County,  3  Dill.  147  ;  Chesa-  5  Smith  v.  County  of  Clark,  54  Mo.  58. 

peake  &  Ohio  Canal  Co.  v.  Blair,  45  Md.  The  coupons  in  this  case  were  in  the  fol- 

102,110;  Town   of  Cicero  v.  Clifford,  53  lowing  form:  "  State  of  Missouri.     Bond 

Ind.  191  ;  Gilbough  v.  Norfolk  &  Peters-  No.  51.     $35.     The  County  of  Clark  will 

burg  R.  R.  Co.  1   Hughes,  410;   Arents  pay  thirty-five  dollars  on  this  coupon  on 

v.  Commonwealth,  18  Gratt.  (Va.)  750;  the  first  day   of   January,    1867,   at  the 

Miller  v.  Town  of  Berlin,  13  Blatchf.  245  ;  treasury  of  said  county." 

Cooper  ».  Town   of  Thompson,  lb.  434  ;  6  McCoy  i?.  Washington  Co.  3  Wall.  Jun. 

Haven  v.  Grand  Junction  R.  R.  &  Depot  381.      The    coupons    were    as    follows: 

Co.  109  Mass.  88;  Spooner  v.  Holmes,  102  "Washington  County  Bonds.     Warrants 

Mass.  503  ;  3  Am.  R.  502.  Contra,  but  not  for  thirty  dollars  interest  on  bond  No.  108, 

authorities,  Clarke  v.  City  of  Janesville,  1  payable  in  the  city  of  New  York,  on  the 

15th  of  May,  1857."     See  §  323. 
298 


NEGOTIABILITY   OF   COUPONS.  [§  322. 

in  the  bond,  not  in  the  coupons.  These  are  intended  by  the  par- 
ties to  be  evidence  of  debt  in  the  hands  of  the  holder,  and  proof 
of  payment  when  in  possession  of  the  debtor.  By  the  contract 
of  the  parties  and  the  usage  of  the  country,  they  are  sufficient 
evidence  of  a  debt  to  the  holder  as  against  the  obligors  of  the 
bonds.  The  possession  of  them  is  primd  facie  evidence  that  the 
holder  is  the  holder  of  the  bond,  or  was  so  when  they  were 
cut  off,  and  as  such  entitled  to  receive  the  interest. 

322.  Interest  coupons,  detached  from  bonds,  payable  to 
bearer  at  a  specified  time  and  place,  are  negotiable  promises  for 
the  payment  of  money,  and  therefore  subject  to  the  same  rules  as 
bank  bills  or  other  negotiable  instruments.  Such  coupons  hav- 
ing been  detached  and  sent  to  New  York  by  express,  on  March 
31,  1871,  for  presentation  and  payment,  were  on  that  day  stolen 
from  the  express  office,  and  on  the  third  day  of  April  following 
were  purchased  by  the  plaintiff  in  good  faith  at  Albany.  He 
was  held  to  have  acquired  a  valid  title  to  them  as  against  the 
true  owner.  The  fact  that  the  coupons  are  declared  to  be  for 
interest  upon  bonds  specified  by  their  numbers  does  not  destroy 
their  negotiability  when  separated  from  the  bond,  or  impair  the 
title  of  one  purchasing  from  another  without  production  of  the 
bond.1  Though  overdue,  such  coupons  are  still  negotiable  in- 
struments, and  one  who  has  taken  them  before  or  after  maturity 
may  give  a  good  title  to  another.2 

A  coupon  for  accrued  interest,  payable  to  bearer,  is  just  as 
much  a  lien  under  the  mortgage  given  to  secure  the  bond  as  the 
bond  itself  ;  and  it  is  just  as  much  a  lien  after  it  is  detached  from 
the  bond  as  before  ;  and  when  held  by  another  person  as  when 
held  by  the  bondholder.  The  fact  that  the  coupon  is  made  paya- 
ble to  bearer  shows  that  a  severance  from  the  bond  was  contem- 
plated. It  is  part  of  the  mortgage  debt,  and  being  made  capable 
of  separate  transfer,  an  assignment  of  it  carries  a  corresponding 
interest  in   the  mortgage    security.      Upon  a  foreclosure  of    the 

1  Evertson  v.  National  Bank  of  New-  lars,  in  gold  coin,  on  the  1st  day  of  April, 

port,  66  N.  Y.  14.    The  form  of  the  con-  1871,  fur  semi-annual   interest  on  bond 

pens  was  as  follows :"  $35.    The  Indian-  No.       .  A.  P.  Lewis,  Secretary." 

apolis,  Bloomington  &  Western    Railway        2  Grand  Rapids  &  Indiana  R.  R.  Co.  v 

Company  will  pay  the  bearer,  at  its  agency  Sanders,  54  Bow.  (N.  V.)  Pr.214  ;  Arents 

in  the  city  of  New  fork,  thirty-five  dol-  v.  Commonwealth,  L8  Qratt.  (Va.)  750. 

299 


§  323.]  INTEREST    AND   INTEREST    COUPONS. 

mortgage  the  holder  of  a  detached  coupon  is  entitled  to  a  pro  rata 
distribution  with  the  holders  of  the  residue  of  the  mortgage  debt.1 

323.  But  coupons  not  payable  to  bearer  or  order  are  not  ne- 
gotiable when  separated  from  the  bonds.2  It  is  doubted  whether 
the  parties  to  an  instrument  can  give  it  a  negotiable  character 
with  all  the  incidents  pertaining  to  negotiable  papers  when  it  is 
not  in  terms  within  the  class  of  instruments  known  to  the  law  as 
negotiable.3  It  is  not  essential  that  an  interest  warrant  should 
be  negotiable  for  the  purpose  of  its  serving  as  authority  from  the 
railroad  company  to  its  financial  agent  to  pay  the  amount  named 
in  it  upon  presentation  although  detached  from  the  bonds.  "  It 
is  possible,"  says  Mr.  Justice  Allen,4  "  that  as  between  such  agent 
and  the  debtor  corporation  the  possession  and  presentation  of  the 
interest  warrants  at  maturity  would  be  evidence  of  an  authority 
to  receive  the  money  by  the  person  presenting  it,  even  as  against 
the  true  owner.  But  if  this  be  conceded,  it  does  not  make  them 
negotiable  as  between  third  persons.  In  this  contract,  as  in  others, 
its  negotiability  depends  upon  its  terms ;  and  the  rule  is,  with 
certain  exceptions  not  applicable  to  this  case,  that  in  instruments 
for  the  payment  of  money,  if  no  one  be  designed  as  payee,  either 
by  name  or  as  bearer,  the  instrument  is  not  a  promissory  note.  If 
these  warrants  are  not  promissory  notes  they  are  not  negotiable; 

they  are  neither  checks  nor  bills  of  exchange The  contract 

embodied  in  these  interest  warrants,  so  far  as  any  contract  can 
be  implied,  cannot,  upon  principle  or  within  any  well  considered 
authority,  be  made  an  exception  to  the  general  rules  by  which  the 
negotiability  of  promises  for  the  payment  of  money  is  determined. 
There  is  no  usage  or  custom  proved  that  would  give  these  war- 
rants a  negotiable  character,  even  if  custom  and  usage  so  recent 
as  one   applicable  to  these    instruments  would  be  could  change 

1  Miller  v.  Rutland  &  Washington  R.  Farmers'  Loan  and  Trust  Company  in  the 
R.  Co.  40  Vt.  399  ;  Sewall  v.  Brainerd,  38     city  of  New  York,  April  1,  1871. 

Vt.  364.  "  W.  J.  Ermentrout,  Secretary." 

2  Evertson  v.  National  Bank  of  New-  See,  also,  Myers  v.  York  &  Cumberland 
port,  66  N.  Y.  14.  The  form  of  the  war-  R.  R.  Co.  43  Me.  232 ;  Jackson  v.  York 
rant  was  as  follows :  "$35.  Interest  war-  &  Cumberland  R.  R  Co.  48  Me.  147; 
rant  for  thirty-five  dollars  ($35),  upon  Crosby  v.  New  London,  &c.  R.  R.  Co.  26 
bond    No.         of    the    Danville,   Urbana,  Conn.  121. 

Bloomington  &  Pekin  Railroad  Company.  3  Cranch  v.  Credit  Foncier  of  England, 
Payable  in  gold  coin  at  the  office  of  the     L.  R.  8  Q.  B.  374. 


300 


4  Evertson  v.  National  Bank  of  Newport, 
supra. 


NEGOTIABILITY    OF   COUPONS.  [§§  324,  825. 

their  legal  effect."  Therefore  one  who  in  good  faith  purchased 
such  warrants  after  they  had  been  stolen  from  the  rightful  owner 
acquired  no  better  title  to  them  than  his  vendor  had  and  could 
convey,  and  the  transaction  was  the  same  in  legal  effect  as  the 
purchase  of  any  article  of  merchandise  from  one  having  no  title 
or  authority  to  sell. 

Dividend  warrants  of  the  Bank  of  England  payable  to  a  partic- 
ular person,  without  words  making  them  transferable,  were  held 
not  negotiable,  although  by  custom  they  had  been  so  treated  for 
sixty  years.1 

324.  Overdue  coupons,  like  other  overdue  negotiable  instru- 
ments, though  in  the  hands  of  a  bond  fide  purchaser  for  value,  are 
subject  to  all  the  defences  and  equities  that  attach  to  ordinary 
choses  in  action ;  the  purchaser  takes  no  better  title  than  the 
party  from  whom  he  received  them  had.2 

A  purchaser  of  overdue  coupons  takes  only  the  title  of  the 
vendor,  and  therefore  acquires  no  title  at  all  to  such  coupons 
when  they  have  been  obtained  by  fraud  or  theft.3 

The  fact  that  past  due  coupons  are  attached  to  a  bond  at  the 
time  of  it  purchase  does  not  invalidate  the  purchaser's  title  as  a 
bond  fide  purchaser  of  the  coupons  thereafter  to  become  due,  and 
of  the  bond  itself.4  The  burden  of  proof  is  upon  the  defendant  to 
show  the  existence  of  any  other  facts  which,  in  connection  with 
the  overdue  coupons,  might  deprive  the  purchaser  of  the  charac- 
ter of  a  bond  fide  holder. 

325.  A  coupon  is  ordinarily  considered  due  and  payable, 
aside  from  the  question  of  days  of  grace,  on  the  day  when  the  in- 
terest it  represents  is  by  the  terms  of  the  bond  made  payable.5 
It  is  not  the  less  payable  at  such  times  because  the  bond  provides 
that  the  interest  shall  be  paid  on  presenting  or  surrendering  the 
proper  coupon.     This  evidence  of  title  must  be  produced  before 

1  Partridge  v.  Bank  of  England, 9  Q.  5  Arents  v.  Commonwealth,  18  Gratt. 

B,  896.  (Va.)  750,  770.    The  coupon  in  this  < 

-  Arents  v.  Commonwealth,  18   Gratt.  was  as  follows:  " Coupon,  city  ofWheel- 

(Va.,i  :  tag,  guaranteed  by  the  State  of  Virginia, 

3  Gilbongh  r.  Norfolk  &  Petersburg  R.  Duncan,  Sherman  &   Co.,  of  New  York, 
l:.  '  !o.  l  Hughes,  4 1 o.  will  pay  the  bearer  thirty  dollars,  the  half- 

4  Miller  v.  Town  of  Berlin,  13  Blatchf.  yearly  interest  on  the  Wheeling  bond 
245,  250.  due  1st  January,  1867.  M.  Nelson,  Mayor." 

301 


§§  326,  327.]  INTEREST    AND    INTEREST    COUPONS. 

the  money  it  calls  for  can  be  demanded,  and  it  must  be  surren- 
dered when  the  money  is  paid.  But  this  is  just  what  the  law 
requires  of  every  holder  of  a  negotiable  security,  and  no  more. 
Such  a  coupon,  as  to  the  time  of  its  maturity  is  different  from  a 
note  payable  on  demand.  It  becomes  due  without  any  demand 
or  presentation. 

326.  Negotiable  interest  coupons  are  entitled  to  days  of 
grace,  like  other  negotiable  instruments  payable  at  a  given  day 
or  on  time ;  and  therefore  one  purchasing  them  after  the  expira- 
tion of  the  time  of  payment  specified,  but  before  the  expiration  of 
the  days  of  grace,  is  a  purchaser  before  maturity.1  Such  coupons 
having  every  other  characteristic  of  promissory  notes,  they  cannot 
be  excepted  from  the  general  rule  which  by  commercial  usage, 
sanctioned  by  law,  is  applied  to  every  instrument,  negotiable  in 
its  character,  coming  within  the  ordinary  definition  of  bills  of  ex- 
change or  promissory  notes.  "  It  is  probably  true  that  they  are 
regarded  and  treated,  as  well  by  promisor  as  promisee,  as  payable 
at  the  day,  and  paid  as  if,  in  terms,  payable  without  grace  ;  but 
this  cannot  destroy  the  character  or  change  the  legal  effect  of  the 
instruments,  the  interpretation  of  which  is  for  the  courts.  It  is 
only  as  negotiable  commercial  paper  that  the  plaintiffs,  as  a  bond 
fide  purchaser,  could  acquire  a  good  title  to  the  coupons  from  one 
having  no  title  thereto;  and  he  can  only  acquire  such  title  by  a 
purchase  under  the  same  circumstances  that  would  give  him  a 
title  to  other  commercial  paper;  and  if  there  were  no  days  of 
grace  for  the  payment  of  these  coupons  they  could  not  be  trans- 
ferred so  as  to  give  a  good  title."  2  If  they  were  payable  at  a 
fixed  day  without  grace,  a  purchaser  after  that  day  would  take 
them  as  overdue  paper,  and  would  gain  no  better  title  than  the 
vendor  had.  It  is  not  doubted  that  a  negotiable  bond,  payable  at 
a  given  day  or  on  time,  is  entitled  to  days  of  grace  ;  and  there  can 
also  be  no  doubt  that  negotiable  coupons  are  entitled  to  the  same 

privilege. 

III.     Order  of  Payment  of  Coupons. 

327.  Payment  of  coupons  should  be  made  in  the  order  in 
which  they  fall  due  ;   and  it  is  doubtless  true  that  the  holder 

1  Evertson  v.  National  Bank  of  New-     Thompson,   13   Blatchf.  434,  438,  where 
port,  66  N.  Y.  14.    See  Cooper  v.  Town  of     above  case  is  cited. 

2  Per  Allen,  J.,  in  Everlson  v.  National 
302  Bank  of  Newport,  supra. 


ORDER   OF   PAYMENT   OF   COUPONS.  [§  328. 

may  in  equity  claim  payment  in  this  order  ;  and  it  has  some- 
times been  claimed  that  a  holder  of  coupons  separated  from 
the  bonds  ought  to  be  paid  before  the  bondholder,  because  that 
would  be  the  order  of  payment  if  the  bonds  and  coupons  were 
held  by  the  same  party.  As  between  debtor  and  creditor  the  law, 
it  is  true,  applies  payment  first  to  extinguish  the  interest ;  but 
where  a  part  of  the  mortgage  debt  has  been  assigned,  and  the 
mortgage  security  is  about  to  be  appropriated  to  pay  the  debt, 
and  is  insufficient  to  pay  the  whole,  mere  priority  of  maturity 
does  not  give  any  right  to  priority  of  satisfaction.1  Neither  is  the 
coupon  holder  entitled  to  priority  over  the  holder  of  the  bond 
from  which  it  was  detached  in  a  final  distribution  of  the  proceeds 
of  the  whole  mortgage  property.  The  bond  and  the  coupon  are 
entitled  to  a  pro  rata  distribution.2 

The  appointment  of  a  receiver  is  for  the  protection  of  all  par- 
ties interested  in  the  mortgaged  property.  When  therefore  a 
subsequent  mortgagee  has  obtained  the  appointment,  he  is  not 
entitled  to  have  the  interest  coming  due  on  his  mortgage  paid  out 
of  the  receipts  of  the  road,  to  the  exclusion  of  a  prior  mortgagee, 
upon  the  ground  that  the  bonds  secured  by  such  subsequent  mort- 
gage are  so  drawn  that  the  principal  debt  becomes  due  and  pay- 
able if  the  interest  be  not  paid.3 

328.  Priority  of  overdue  interest.  —  A  railway  mortgage 
contained  the  following  clause  :  "  In  case  of  default  in  the  pay- 
ment of  interest  or  principal  of  any  bonds,  and  a  sale  or  other 
proceedings  to  coerce  the  same,  all  bonds  which  shall  then  be 
a  lien  in  common  therewith,  and  the  interest  accrued  thereon, 
shall  be  considered,  and  shall  in  fact  be  equally  due  and  payable, 
and  entitled  to  a  pro  rata  dividend  of  the  proceeds  of  said  sale  or 
other  proceedings  ;  but  in  no  case  shall  the  principal  of  any  bond 
be  considered  due  until  twenty  years  from  the  date  thereof." 
Upon  ;i  sale  under  the  mortgage  within  the  twenty  years,  it  was 
held  that  the  overdue  interest  warrants  were  entitled  to  no  prefer- 
ence; and  it  was  declared  that  the  provision  that  no  bond  should 
>nsidered  due  until  twenty  years  after  its  date  was  inserted 
merely  t"  exclude  any  possible  inference  that  a  bondholder  under 

«  Bewail  v.  Brainerd,  38  Vt.  SI  14.  a  Brown   -•.  \.  V.  &  Brie  B.  K.  Co.   39 

2  Bewail  ".  Brainerd,  supra  ,•  Miller  v.  How.  Pr.  (N.  V)  451. 

Rutland  &  Washington  l.\  U.  Co.  40  Vt. 

3'J'J.  ;'li;» 


§  329.]  INTEREST    AND   INTEREST    COUPONS. 

any  circumstances  might,  bring  an  action  for  the  principal  before 
it  became  due  by  its  terms.1 

329.  But  coupons  which  the  bondholders  had  presented  for 
payment,  and  which  they  had  reason  to  suppose  were  paid  by 
the  company,  are  not  entitled  to  share  in  the  proceeds  of  sale  as 
against  such  bondholders,  although  they  were  in  fact  taken  up  by 
one  who  advanced  the  money  under  an  agreement  that  they  were 
to  be  delivered  to  him  uncancelled,  as  security  for  the  advances.2 
The  bondholders  had  a  direct  interest  in  having  the  coupons  paid, 
so  as  to  preserve  the  value  of  their  security.  They  delivered 
them  up  to  the  company  for  payment,  and  supposed  they  were 
paid.  If  they  had  known  the  true  state  of  the  case  they  might 
have  refused  to  assign  the  coupons,  and  thus,  by  allowing  an  accu- 
mulation of  interest,  to  have  impaired  the  value  of  their  security. 
And  they  could  have  caused  a  foreclosure  of  the  mortgage  for  a 
default  in  the  payment  of  interest.  The  court  regarded  the  po- 
sition of  the  bondholders  who  had  presented  their  coupons  and 
received  payment  in  this  way  as  being  equally  strong  as  if  they 
had  purchased  their  bonds  in  the  belief  that  the  coupons  had 
actually  been  paid.  As  against  such  purchasers  there  could  be  no 
question  that  the  person  who  had  advanced  the  money  for  the 
coupons  would  be  estopped  from  claiming  that  he  took  a  transfer 
of  them.3 

Of  course  the  mortgage  remained  a  security  for  the  payment  of 
the  coupons  until  paid,  whether  detached  or  not.  As  against  the 
railroad  company,  the  persons  who  advanced  money  for  the  coupons 
in  this  way  could  enforce  the  mortgage.  The  company  had  not 
paid  the  coupons,  and  was  in  no  way  harmed  by  their  payment 
by  a  third  person  under  this  arrangement ;  but  the  bondholders 
never  agreed  that  he  should  take  and  hold  the  coupons,  and  they 
did  not  agree  that  he  should  have  any  interest  in  the  mortgage 
security.  The  mortgage  security  proving  insufficient  to  pay  the 
entire  debt,  their  equity  is  superior  to  the  equity  of  the  party 
who  advanced  the  money;  and  as  against  their  equity  .he  cannot 
be  subrogated  to  the  claim  under  the  mortgage. 

1  Dunham  v.  Cincinnati,  Peru,  &c.  Ry.  Virginia  v.  Chesapeake  &  Ohio  Canal  Co. 
Co.  1  Wall.  254.  32  Mil.  501. 

2  Union  Trust  Co.  of  N.  Y.  v.  Monti-  s  Haven  v.  Grand  Junction  R.  R.  & 
cello  &  Port  Jervis  Ry.  Co.  63  N.  Y.  31 1  ;  Depot  Co.  109  Mass.  88. 

304 


ORDER    OF   PAYMENT    OF    COUPONS.  [§§  330,  331. 

330.  But  one  who  has  taken  up  coupons  in  this  way  may 
claim  payment  from  any  surplus  left  after  payment  of  the 
bondholders.  Although  having  taken  up  the  coupons  due  on 
mortgage  bonds  of  a  corporation  at  its  request,  upon  an  under- 
standing between  him  and  the  corporation  that  they  were  not  ex- 
tinguished as  against  it,  but  were  to  be  held  by  him  in  place  of 
the  persons  who  presented  them,  he  may  be  estopped  to  come  for- 
ward as  a  purchaser  and  assignee  of  the  coupons  when  the  trans- 
action appeared  to  be  a  payment  of  the  coupons  by  the  company, 
and  was  supposed  by  its  creditors  to  be  a  payment  of  them  and 
not  an  assignment,  and  the  security  proves  to  be  insufficient  to 
pay  the  entire  mortgage  debt;  yet  if  there  be  a  surplus  of  pro- 
ceeds remaining  after  full  satisfaction  of  the  claims  of  all  the 
other  creditors  whose  claims  were  covered  by  the  mortgage,  he  is 
not  estopped  to  maintain  a  claim  for  the  amount  of  the  coupons 
paid  by  him,  with  interest  from  the  date  of  payment.1  The  only 
parties  who  could  object  to  this  proceeding  would  be  the  other 
creditors  secured  by  the  same  mortgage  ;  and  when  their  divi- 
dend will  not  be  diminished  by  allowing  the  claim  of  one  who  has 
taken  up  coupons  under  such  an  arrangement,  there  can  be  no 
objection  to  the  allowance  of  the  claim.  They  cannot  object  to 
the  claim,  although  the  supposed  payment  of  the  coupons  at  ma- 
turity may  have  induced  them  to  make  purchases  of  the  bonds, 
becanse  having  received  their  entire  debt  they  cannot  be  said  to 
have  suffered  any  loss  or  inconvenience  from  the  mode  in  which 
the  coupons  were  taken  up. 

331.  But  when  the  transaction  is  not  upon  its  face  a  pay- 
ment, but  rather  a  transfer,  as  for  instance  when  the  coupons 
are  not  redeemed  by  the  corporation  that  made  them,  or  at  its 
office  or  other  place  where  the  coupons  are  made  payable,  there  is 
no  presumption  of  the  payment  and  extinguishment  of  the  cou- 
pons. When  therefore;  a  corporation  which  had  previously  paid 
its  coupons  at  its  own  office  directs  the  holders  to  take  the  cou- 
pons to  a  bank  where  they  would  receive  payment,  and  the 
holders  there  received  the  amounts  due  on  the  coupons  and  left 
them  in  the  possession  of  the  hank,  they  might  properly  presume 
that  the-  company  was  not  paying  the   coupons.      Inasmuch   as   the 

i  Haven  v.  Grand  Junction  B.  U.  ft  Depot  Co.  109  Mm 

20  305 


§  831.]  INTEREST    AND   INTEREST    COUPONS. 

holders  of  the  coupons  received  from  the  corporation  no  checks 
upon  the  bank,  they  must  have  known  that  the  bank  had  no 
vouchers  for  its  payments  unless  the  coupons  continued  in  force 
after  the  bank  received  them  ;  and  hence  it  is  regarded  as  a  fair 
presumption,  that,  when  they  delivered  the  possession,  they  as- 
sented to  a  transfer  of  ownership.1  "Interest  coupons,"  says  Mr. 
Justice  Strong,  delivering  the  judgment  of  the  Supreme  Court 
of  the  United  States,  "  are  instruments  of  a  peculiar  character. 
The  title  to  them  passes  from  hand  to  hand  by  mere  delivery. 
A  transfer  of  possession  is  presumptively  a  transfer  of  title.  And 
especially  is  this  true  when  the  transfer  is  made  to  one  wrho  is  not 
a  debtor,  to  one  who  is  under  no  obligation  to  receive  them  or  to 
pay  them.  A  holder  is  not  warranted  to  believe  that  such  a  per- 
son intended  to  extinguish  the  coupons  when  he  hands  over  the 
sum  called  for  by  them  and  takes  them  into  his  possession.  It  is 
not  in  accordance  with  common  experience  for  one  man  to  pay  the 
debt  of  another  without  receiving  any  benefit  from  his  act.  We 
cannot  close  our  eyes  to  things  that  are  of  daily  occurrence.  It  is 
within  common  knowledge  that  interest  coupons,  alike  those  that 
are  not  due  and  those  that  are  due,  are  passed  from  hand  to  hand, 
the  receiver  paying  the  amount  they  call  for  without  any  inten- 
tion on  his  part  to  extinguish  them,  and  without  any  belief  in  the 
other  party  that  they  are  extinguished  by  the  transaction.  In 
such  a  case,  the  holder  intends  to  transfer  his  title,  not  to  extin- 
guish the  debt.  In  multitudes  of  cases,  coupons  are  transferred 
by  persons  who  are  not  the  owners  of  the  bonds  from  which  they 
have  been  detached.  To  hold  that  in  all  these  cases  the  coupons 
are  paid  and  extinguished,  and  not  transferred  or  assigned,  unless 
there  was  something  more  to  show  an  assent  of  the  person  parting 
with  the  possession  that  they  should  remain  alive,  and  be  avail- 
able in  the  hands  of  the  person  to  whom  they  were  delivered, 
would,  we  think,  be  inconsistent  with  the  common  understanding 
of  business  men." 


1  Ketchum  v.  Duncan,  96   U.  S.  659.  of  the  justices  of  the  court  dissented,  on 

This   case   is   clearly  distinguished   from  the    ground    that    the    holders    had    no 

cases  like  those  in  the  preceding  section,  thought  of  selling  the  coupons,  and  there- 

where  the  coupons  were  paid  at  the  com-  fore  in  law  did  not  sell  them.     The  deci- 

pany's  office,  or  with  money  advanced  to  sion  of  the  court  is,  however,  regarded  as 

the  company  for   the  purpose.     Yet  four  sound. 

306 


INTEREST   ON   OVERDUE   COUPONS  AND   BONDS.  [§  332. 

IV.  Interest  on  Overdue  Coupons  and  Bonds. 

332.  Interest  is  recoverable  upon  coupons  after  their  ma- 
turity by  way  of  damages  for  the  detention  of  money  due,  and 
should  be  computed  at  the  lawful  rate  without  semi-annual  or 
other  rests.1  Such  interest  will  be  computed  only  at  the  legal 
rate,  even  where  the  rate  of  interest  on  the  bonds  themselves  after 
maturity  continues  at  a  higher  rate  which  the  parties  are  allowed 
under  the  statutes  to  contract  for,  the  statutory  rate  applying  only 
in  the  absence  of  a  different  stipulated  rate.2 

A  bond  payable  at  a  fixed  time  and  place  on  the  surrender  of 
the  bond  bears  interest  from  its  maturity,  although  no  demand 
of  payment,  or  offer  to  surrender  the  bond,  be  made.3  This 
principle  has  been  long  established,  though  there  is  some  dif- 
ference of  opinion  whether  the  interest  follows  as  a  part  of  the 
contract,  by  the  recognized  rule  appertaining  to  the  breach  of  a 
written  promise  to  pay  a  named  sum  at  a  fixed  period,  or  as  com- 
pensation, in  the  way  of  damages,  for  the  detention  of  the  debt. 
If  a  bond  be  made  payable  on  demand  at  a  particular  place,  no 
default  of  payment  could  be  averred  without  a  compliance  with 
the  condition  precedent  of  making  demand ;  and  consequently 
there  can  be  no  recovery  of  interest  except  from  the  time  of  a 
demand.4 

The  owner  of  lost  coupons  is  entitled,  upon  tendering  indem- 
nity, to  recover  the  amount  of  them,  with  interest  from  the  date 
of  demand  and  tender  of  indemnity.5 

Interest  upon  the  coupons  of  the  Chesapeake  and  Ohio  Canal 

I  Town  of  Genoa  v.  Woodruff,  92  U.  Life  Ins.  Co.  v.   Cleveland,  Columbus  & 

S.  502;    Aurora  City  v.  West,  7  Wall.  82,  Cincinnati   R.  R.  Co.  41    Barb.  (N.  Y.)  9; 

105;  Cromwell   v.  County  of  Sac,  9G  U.  S.    C.  26   How.   Pr.  225;    McLcndon   v. 

S.  51  ;    llollingsworth  v.  City  of  Detroit,  Com'rs  of  Anson  County,  71  N.  C.  38. 

:;  McLean,  472;    Gelpcke  <•.  City  of  Du-  -  <  'rorawell  v.  County  of  Sac,  96  U.S. 

buque,  1  Wall.  175;   Ashuelot  R.  R.  Co.  51,62. 

v.  Elliot,  57  N.  II.  .i'.)7  ;    Langston  v.   So.  3  Langston  v.  So.  Carolina  R.  R.  Co.  2 

Carolina    II.  1!.  Co.  2  S.  C.  248  ;    County  S.  C.  248;  Spencer  v.  Pierce,  5  R.  1.  63. 

of  Bi       t   r.  Armstrong,  44  Pa.  St.   63;  4  Aurora  City  v.  West,  7  Wall.  B2,  LOS  ; 

Virginia  v.  Chesapeake  &  Ohio  Canal  Co.  Gelpcke  v.  City  of  Dubuque,  I  Wall.  175, 

82Md.  501;    North   Pennsylvania   li.  R.  206;    Corcoran    v.   Chesapeake    &   Ohio 

Co.  o.Adams,  54    Pa.   St.   94;    Mills  v.  Canal   Co.  1    McArthur   (1>.   C),    358; 

Town  of  Jefferson,  20  Wis.  50;   Arents  v.  Whitakerv.  Hartford,  Providences  Pish 

I     nmonwealth,  18  Gratfc  (Va.)  750,  776;  kill  R.  R.  Co.  8  R.  I.  17. 

Burroughs  v.  Co issioners  of  Richmond  "  Fitchew   v.   North    Pa.    R.    R.  Co.  5 

N.  C  234;  Connecticut  Mat.  Phila.  (Pa.)  182. 

807 


§§  333,  334.]        INTEREST   AND   INTEREST    COUPONS. 

Company  was  not  allowed  as  against  the  State  of  Maryland, 
which,  having  a  prior  lien  upon  the  property,  waived  it  in  favor 
of  the  bonds,  "  so  as  to  make  the  said  bonds  and  the  interest  to 
accrue  thereon  preferred  and  absolute  liens,"  until  the  bonds  and 
interest  should  be  fully  paid.  This  waiver  was  construed  to  ex- 
tend only  to  the  principal  and  interest  of  the  bonds,  so  that  inter- 
est on  the  overdue  coupons  could  not  be  paid  until  the  lien  of  the 
state  had  been  satisfied.1 

333.  In  like  manner  where,  by  the  terms  of  the  mortgage, 
bonds  to  a  certain  amount  are  to  be  called  or  drawn  for  re- 
demption semi-annually,  and  to  be  paid  from  a  sinking  fund  before 
the  time  fixed  for  the  final  redemption  of  the  mortgage,  if  bonds 
are  drawn  and  remain  unredeemed  through  failure  of  the  mort- 
gagor to  provide  funds,  interest  continues  to  run  upon  these  bonds 
up  to  the  time  of  their  payment.  And  where,  in  such  a  case, 
default  having  been  made,  the  trustees  took  possession  and  after- 
wards had  funds,  out  of  which  they  proposed  to  pay  interest  oniy 
on  the  undrawn  bonds,  they  were  enjoined  from  so  doing,  and 
directed  to  apply  the  funds  in  the  first  place  in  payment  of  in- 
terest, pari  passu,  on  undrawn  bonds,  and  on  drawn  bonds  which 
remained  unpaid  through  the  failure  of  the  borrowers  to  provide 
funds.2 

334.  If  a  corporation  has  no  funds  at  the  place  at  which 
the  coupons  of  its  bonds  are  to  be  presented  for  payment,  interest 
is  payable  on  the  coupons  after  maturity  without  presentation. 
To  make  available  a  defence  of  readiness  to  pay  the  coupons 
at  the  time  and  place  they  were  payable,  it  must  be  alleged,  and 
inasmuch  as  such  a  plea  is  affirmative,  it  casts  the  burden  of  proof 
upon  the  defendant.3  If,  however,  the  corporation  has  money  at 
the  time  and  place  fixed  for  the  payment  of  its  coupons  sufficient 
to  pay  them  and  all  other  maturing  obligations,  it  is  not  neces- 
sary for  the  company,  in  order  to  escape  after-accruing  interest, 
to  show  that  the  money  for  the  payment  of  its  coupons  was  kept 
separate  from  the  other  funds  of  the  company.4 

1  Corcoran  v.  Chesapeake  &  Ohio  Canal  3  North  Pennsylvania  R.  R.  Co.  v.  Ad- 
Co.  1  Mc Arthur  (D.  C),  358.  arns,  54  Pa.  St.  94. 

2  Gordillo  v.  Weguelin,  L.  R.  5  Ch.  D.  *  Emlen  v.  Lehigh  Coal  &  Navigation 
287.  Co.  47  Pa.  St.  76. 

308 


INTEREST    ON    OVERDUE   COUPONS   AND   BONDS.       [§§  335,  33G. 

It  is  not  necessary  to  present  a  coupon  for  payment  at  a  place 
named  as  a  condition  precedent  to  a  recovery  of  judgment  upon  it 
against  the  maker.1 

Coupons  payable  at  a  particular  office  are  like  notes  payable  at 
a  specified  bank,  and  import  that  the  debtor  will  have  a  deposit 
at  the  time  and  place  specified  to  pay  them  with.  Unless  it  be 
shown  that  a  fund  was  so  provided,  it  is  no  defence  to  allege  a 
want  of  demand.2  In  North  Carolina,  contrary  to  the  general 
rule,  it  is  held  that  in  an  action  against  the  board  of  commis- 
sioners of  a  county,  a  demand  is  necessary,  not  to  fix  the  liabil- 
ity, but  simply  to  give  notice  of  the  liability,  and  an  opportunity 
to  pay  without  suit.3 

A  demand  of  payment  of  interest  due  upon  bonds  at  the  place 
where  they  are  made  payable  by  the  holder  is  sufficient  without 
any  demand  by  the  trustee.4 

335.  A  corporation  is  not  bound  to  seek  its  creditors  in  a 
foreign  country,  unless  it  has  agreed  so  to  do ;  and  therefore  a 
foreign  bondholder,  or  a  resident  bondholder  who  is  absent  from 
the  country,  cannot  compel  the  company  to  pay  interest  on  over- 
due coupons,  or  upon  the  loan  after  it  has  fallen  due,  in  the  ab- 
sence of  all  proof  of  inability  or  want  of  readiness  to  pay  them  at 
the  time  and  place  they  were  made  payable.5 

336.  The  rate  of  interest  recoverable  after  maturity,  where 
the  statutes  allow  the  parties  to  agree  upon  any  rate,  upon  a  bond 
not  providing  for  the  rate  after  the  debt  becomes  due,  according  to 
some  authorities  is  that  fixed  by  law  for  cases  where  the  parties 
have  not  agreed  upon  a  rate,  although  the  rate  which  the  bond 
bears  upon  its  face  before  maturity  be  either  higher  or  lower  than 
the  legal  rate.6  But  a  different  rule  has  been  declared  by  some 
courts,  and  the  weight  of  authority  supports  the  rule  that  the  rate 

1  Smith  v.  Tallapoosa  County,  2  Woods,  6  Emlen  v.  Lehigh  Coal  &  Navigation 

574,  Co.  47  Pa.  St.  76. 

•  Philadelphia  &  Baltimore  Central  It.  c  Brewster  v.  Wakefield,  22  How.  118; 
!,'.  Co.  v.  John  on,  54  Pa.  St.  127.  Langston  v.  S.  Carolina  K.  K.  Co. 2  8.  C. 

•  Alexander  v.  Com'rs  of  McDowell,  67  248;  Virginiav.  Chesapeake  &Ohio Canal 
N.  C.330;  McLendon  v.  Com'rs  of  Anson  Co.82Md.501;  Lash  w.Lambert,  15  Minn. 
Connty,  71  N.  C.  38.  416;    Searle    v.   Adams,    3   Kans.  515; 

<  Tali,  r  v.  Cincinnati,  Logansnort  &     Pearce  v.  Hennessy,  10E.  I.  223. 


Chicago  Hy.  Co.  15  In.l.  169. 


:;<!'.) 


§  336.]  INTEREST    AND   INTEREST    COUPONS. 

of  interest  stipulated  in  the  bond  attends  the  contract  until  it  i=i 
merged  in  judgment.1  It  is  doubtful  whether  the  Supreme  Court 
of  the  United  States  would  now  follow  the  case  of  Brewster  v. 
Wakefield,  under  like  circumstances,  although  there  is  a  clear  dis- 
tinction between  that  and  the  later  case  of  Cromwell  v.  County  of 
Sac.  The  former  case  arose  under  a  statute  of  the  Territory  of 
Minnesota,  which  allowed  parties  to  agree  upon  any  rate  of  in- 
terest, and  prescribed  seven  per  cent,  in  the  absence  of  such  agree- 
ment. The  court,  bound  by  no  adjudication  of  the  territorial  court 
and  looking  with  disfavor  upon  the  exorbitant  interest  stipulated 
for  in  that  case,  gave  a  strict  construction  to  the  contract  of  the 
parties,  saying :  "  When  a  party  desires  to  extort,  from  the  neces- 
sities of  a  borrower,  more  than  three  times  as  much  as  the  legisla- 
ture deems  reasonable  and  just,  he  must  take  care  that  the  con- 
tract is  so  written  in  plain  and  unambiguous  terms ;  for  with  such 
a  claim  he  must  stand  on  his  bond."  The  case  of  Cromwell  v. 
County  of  Sac  arose  under  a  statute  which  fixed  the  legal  rate  of 
interest  at  six  per  cent.,  but  allowed  parties  to  agree  in  writing  for 
a  rate  not  exceeding  ten  per  cent.,  and  provided  that  a  judgment 
upon  the  contract  shall  bear  the  same  rate.  The  bonds  in  ques- 
tion bore  interest  at  the  rate  of  ten  per  cent.,  and  the  court  held 
that  they  drew  the  same  rate  after  maturity.  In  this  decision  the 
Supreme  Court  followed  the  adjudications  of  the  state  courts.  The 
argument  also  was  conclusive  that  as  a  judgment  in  case  of  a  stip- 
ulated interest  must  bear  the  same  rate,  it  could  not  have  been 
intended  that  a  different  rate  should  be  allowed  between  the  ma- 
turity of  the  contract  and  the  entry  of  the  judgment.  Moreover, 
the  limitation  of  ten  per  cent.,  within  which  the  parties  may 
agree  for  interest,  relieves  the  court  from  sanctioning  an  extrava- 
gant and  unreasonable  agreement  for  interest. 

The  doctrine  of  the  English  decisions  is,  that  after  the  maturity 
of  a  mortgage  or  mortgage  bond,  when  the  money  for  the  payment 
of  the  debt  has  not  been  provided  for  at  the  place  of  payment,  in- 
terest will  run  on  at  the  old  rate  up  to  the  time  of  redemption. 
What  is  paid  for  interest  after  maturity  may  be  technically  called 

1  Brannonv.  Hursell,112  Mass.6.3;  Crom-  McDaniel,  28  111.  201;  Pruyn  v.  City  of 

welly.  County  of  Sac,  96  U.  S.  51  ;  Beck-  Milwaukee,  18  Wis.   367;  Hand  v.  Arm- 

with  v.  Hartford,  Providence   &   Fishkill  strong,  18  Iowa,  324;  Kohler  v.  Smith,  2 

R.  R.  29  Conn.  268  ;  Marietta  Iron  Works  Cal.  597  ;  McLane  v.  Abrams,  2  Nev.  199  ; 

v.  Lottimer,  25  Ohio  St.  621 ;   Etnyre  v.  Hopkins  v.  Crittenden,  10  Tex.  189. 

310 


SUITS   UPON   COUPONS.  [§  337. 

damages,  but  it  is  damages  of  a  peculiar  kind,  for  it  would  not  be 
left  to  a  jury  to  regulate  their  amount;  the  jury  would  be  directed 
as  a  matter  of  law  to  find  damages  of  the  same  amount  as  the 
interest,  which  would  have  been  payable  if  the  covenant  had  ex- 
tended over  this  period.1  There  may,  perhaps,  be  an  exception 
to  this  rule  when  the  agreed  rate  of  interest  is  excessive  and  ex- 
traordinary  ;  and  when  the  court  would  adopt  the  statute  rate  of 
interest  after  maturity,  as  damages  for  the  breach  of  the  condi- 
tion.2 

V.  Suits  upon  Coupons. 

337.  A  holder  of  negotiable  coupons  may  sue  and  recover 
upon  thern  without  producing  or  being  interested  in  the  bonds 
from  which  they  were  detached.3  The  declaration  need  not  recite 
the  bond  from  which  the  coupons  were  cut,  though  it  is  proper  in 
some  cases  to  show  the  relation  which  the  coupons  originally  bore 
to  the  bond.4  Several  coupons  may  be  declared  upon  in  a  single 
count,  distinguishing  them  by  a  reference  to  the  numbers  of  the 
bonds  to  which  they  belonged.5 

Neither  does  it  make  any  difference  that  the  bond  itself  has 
been  paid,  when  demand  is  made  or  suit  commenced  upon  a  nego- 
tiable coupon  in  the  usual  form  detached  from  it.  When  the  cou- 
pon is  detached  from  the  bond  it  loses  its  character  as  a  mere 
incident  to  the  bond,  and  becomes  an  independent  claim,  and 
therefore  the  payment  of  the  bond  could  have  no  effect  upon  the 
coupon  previously  detached.  The  action  is  not  upon  the  bond, 
but  upon  the  coupon  as  separated  from  the  bond.  A  special 
count  of  a  declaration  setting  forth  the  bond  by  way  of  induce- 
ment, but  founding  the  cause  of  action  upon  a  coupon,  and  aver- 
ring that  it  had  been  detached  before  the  bond  was  paid  and  that 
it  was  subsequently  presented  for  payment,  and  payment  refused, 
is  not,  probably,  open  to  objection  ;  but  at  any  rate  a  general 
count  in  debt  is  not.6     It  may  sometimes  be  necessary  to  resort  to 

1  Gordillo  v.  Weguelin,  L.  R.  5  Ch.  D.  for  interest  are  issued  with  bonds,  mid,  for 
287,  per  Amphlett,  J.  ;  .Morgan  v.  Jones,  8  a  valuable  consideration,  arc  detached  and 
Ex.  020;  Price  d.  Great  Western  By.  Co.  assigned  by  delivery,  the  assignee  may 
16  M.  &  W.  2ii.  maintain  assumpsil  upon  them  in  his  own 

2  Cook  v.  Wood,  L.  R.  7  II.  L.  27.  name  against  the  corporation  engaging  to 

3  Thomson  v.  Lee  County,  :;  Wall.  :i27  ;     pay  them.     K.  S.  1-71,  p.  454. 

City  v.  Lamson,  9  Wall.  477.  B  New   London  City   National  Bank  v. 

*  City  >■.  Lamson,  9  Wall.  477  ;  Bing».  Ware  River  R.  R.  Co.  U  Conn.  542. 

County  of  Johnson,  6  Iowa,  265.  In  Maine  «  Thomson  v.  LeeCounty.S  Wall.S27  ; 

it  is  provided  by  statute  that  when  coupons  Spooner  v.  Holmes,  102  Mass.  308  ;  3  Am. 

811 


§  338.]  INTEREST   AND   INTEREST    COUPONS. 

the  bond  to  prove  the  execution  of  the  coupon;  but  when  it  con- 
tains a  promise  of  payment  to  bearer,  it  is  an  independent  negoti- 
able instrument,  and  the  cancellation  of  the  bond  has  no  effect 

upon  it. 

But  in  a  suit  upon  coupons  of  municipal  bonds  which  could  be 
issued  only  by  virtue  of  legislative  authority,  that  authority  should 
appear  either  by  distinct  averment  of  the  specific  act  conferring  it, 
or  by  stating  the  recital  of  the  bond  in  that  respect.  The  cou- 
pons, though  detached,  are  related  to  the  bonds  to  which  they 
originally  belonged,  and  by  way  of  inducement  or  recital  this  re- 
lation ought  to  appear  on  the  face  of  the  declaration  or  petition.1 
It  is  not  necessary,  however,  to  set  out  the  vote  orelection  pro- 
vided for  under  the  statute  preliminary  to  the  issuing  of  the  bonds 
and  coupons.2 

338.  Coupons  which  contain  no  negotiable  words,  nor  any 
lano-uao-e  from  which  it  can  be  inferred  that  the  intention  was  to 
make  them  negotiable,  cannot  be  enforced  in  the  name  of  an  as- 
sin-nee.3  Such  coupons  can  be  enforced  only  in  the  name  of  the 
bondholder.  He  would  be  bound  to  enforce  the  coupons  in  be- 
half of  the  person  to  whom  he  had  thereby  transferred  a  portion 
of  his  interest  in  the  bond  ;  but  the  nature  of  the  contract  as  a 
mere  right  of  action  is  not  changed  by  the  transfer.4 

A  coupon  which  is  not  negotiable  is  equally  a  part  of  the  mort- 
gage debt,  and  an  assignment  of  it  carries  with  it  by  implication 
an  interest  in  the  mortgage  security  ;  only  the  assignee  would  be 
obliged  to  seek  payment  of  it  in  the  name  of  the  person  to  whom 
it  was  issued.5 

An  interest  warrant  which  does  not  import  a  promise,  but  is  a 
mere  acknowledgment  of  indebtedness  for  interest  on  the  bond 
itself,  cannot  generally  be  made  the  ground  of  an  action.6     When 

R.  491  ;  National  Exchange  Bank  v.  Hart-  hill  v.  Trustees  of  the  City  of  Sonora,  17 

ford,  Providence  &  Fishkill  R.  R.  Co.  8  Cal.  172. 

R.  I.  375;  Miller  v.  Town  of  Berlin,  13  3  Jackson  v.  York  &  Cumberland  R.  R, 

Blatchf.   245,    250  ;    Cooper  v.  Town  of  Co.  48  Me.  147. 

Thompson,  lb.  434,  438.  i  Wright  v.   Ohio  &  Miss.  R.  R.  Co.  1 

1  City  v.  Lamson,  9  Wall.  477;  Ken-  Dis.  (Ohio)  465. 

nard  v.  Cass  County,  3  Dill.  147  ;  Thayer  s  Sewall  v.  Brainerd,  38  Vt.  364. 

v.  Mont-gomery  County,  3  Dill.  3S9.    See,  6  Crosby  v.  New  London,  Willimantic 

however,  Ring  v.   County  of  Johnson,  6  &  Palmer  R.  R.  Co.  26  Conn.  121.     The 

Iowa,  265.  interest   warrant    was    in    the    following 

2  See   §§  287-299,  of  ch.  vii. ;  Under-  form:  "  Interest  Warrant.     Mortgage  and 

312 


suits  upon  coupons.  [§§  339,  340. 

the  right  of  interest  is  founded  upon  the  bond  itself,  the  declara- 
tion should  be  specially  upon  that.  Thus,  if  the  bond  be  made 
payable  to  bearer,  with  semi-annual  interest  thereon  payable  at 
the  office  of  the  company  on  delivery  of  certain  interest  warrants 
annexed,  which  imply  no  promise  of  payment  in  themselves,  no 
one  but  the  holder  of  the  bond  can  maintain  an  action  for  the 
interest.  The  form  of  the  instruments  shows  that  the  interest 
warrants  were  not  intended  to  be  additional  or  collateral  promises 
or  securities  for  the  payment  of  interest,  but  that  they  were  de- 
vised only  as  convenient  and  safe  vouchers,  furnishing  the  com- 
pany evidence  of  payment,  and  for  the  bondholder,  superseding 
the  necessity  or  trouble  of  presenting  the  bond  itself  for  the  pay- 
ment of  the  interest  due  upon  it. 

An  interest  coupon,  or  warrant  in  the  form  of  an  order,  doubt- 
less imports  a  promise,  and  of  itself  is  a  ground  of  action.1 

339.  When  by  the  terms  of  a  mortgage  the  coupons  are 
payable  only  from  the  net  revenues  of  the  company,  in  a  suit 
upon  them  it  is  necessary  to  allege  and  prove  the  existence  of 
such  revenues  before  there  can  be  any  recovery.  Unless  revenue 
comes  into  the  treasury  of  the  company  the  bondholders  cannot 
claim  its  appropriation  to  the  payment  of  the  coupons.  A  de- 
mand for  payment  when,  without  the  company's  fault,  there  are 
no  revenues  on  hand  to  meet  the  coupons,  is  premature,  and  prop- 
erly refused  ;  therefore  in  such  case  interest  is  not  recoverable 
upon  the  coupons  from  the  time  of  such  demand  ;  but  only  from 
a  demand  when  there  are  such  revenues  and  an  unjust  refusal.2 

340.  The  plea  of  the  Statute  of  Limitations  is  not  a  good 
defence  to  an  action  upon  coupons,  when  it  would  not  be  a  good 
defence  to  the  bonds  from  which  they  were  cut.  They  arc  but 
repetitions,  as  respects  the  interest  payable  at  stated  times,  of  the 
contract  which  the  bond  itself  makes  on  that  subject,  and  are  a 
device  for  the  convenience  of  the  holder  in  the  way  of  collecting 
the    interest.      They  do  not  change  the  nature  of   the   security 

Convertible  Bond.    For  thirty  dollars,  be-  l  Town  of  Queensbury   v.  Culver,  19 

ing  half  yearly  interest  on  Bond  No.  80  of  Wall.  83. 

the  New  London,  Willimantic,  and  Palmer  -  Corcoran  v, « !hesap<  alee  8  I  ►bio  <  laual 

Railroad  '  lorporation,  payable  on  the  first  Co.  l  Me  Arthur  ( 1>.  ' 

day  <>(  February,  ihjc.    John  Dickinson, 

Treasurer. 

:;i:; 


§  340.]  INTEREST   AND    INTEREST    COUPONS. 

given  by  the  bond  for  the  interest.  There  is  really  but  one  con- 
tract for  the  payment  of  interest,  and  that  is  contained  in  the 
bond.  When  the  coupons  are  cut  off,  they  still  partake  of  the 
security  of  the  bond.1 

But  the  statute  begins  to  run  against  actions  upon  coupons  for 
interest  from  the  time  of  their  maturity,  when  they  have  been 
detached  from  the  bonds  and  transferred  to  others  than  the  hold- 
ers of  the  bonds.     The  coupons  themselves  give  a  right  of  action 
without  the  bond,  and  it  would  be  exceptional  and  illogical  to 
hold  that  the  statute  sleeps  with  respect  to  claims  upon  them, 
while  a  complete  right  of  action  upon  them  exists  in  the  holder. 
Therefore  where  a  Statute  of  Limitations  extends  the  same  limi- 
tation to  actions  upon  all  written  contracts,  sealed  or  unsealed,  it 
begins  to  run  against  coupons  from  their  maturity,  so  that  in  such 
case  an  action  upon  the  coupons  would  become  barred  before  an 
action  upon  the  bonds  themselves  maturing  at  a  later  date  would 
be  barred.2     Referring  to  the  previous  decisions  by  the  Supreme 
Court  of  the  United  States  upon  this  point,  Mr.  Justice  Field 
said  :   "  It  was  not  the  intention  of  the  court  to  decide  that  an 
action  upon  a  coupon  detached  from  the  bond,  and  negotiated  to 
other  parties,  was  not  subject  to  the  same  limitations  as  an  action 
upon    the    bond  itself  ;    much  less  to  hold  that  the    coupons  re- 
mained a  valid    and  existing    cause  of   action,  not  only  for  the 
period  prescribed  for  actions  on  the  bond  after  its  maturity,  but 
for  the  additional  period  intervening  between  the  maturity  of  the 
coupon  and  the  maturity  of  the  bond,  however  great  that  might 
be.      The    question    before    the    court   in   those    cases   was    only 
whether  the  time  the  statute  had  to  run  against  the  coupons  was 
the  longest  or  shortest  period ;  —  was  it  six  or  twenty  years  in  the 
Wisconsin  case,  or  was  it  five  or  fifteen  years  in  the  Kentucky 
case  ;  —  and  the  court  held  that  the  statute  ran  for  the  longest 
period,  because  the  coupons  partook  of  the  nature  of  the  bonds 
and  the  statute  ran  for  that  period  as  to  them." 

A  similar  case  arose  under  the  Statute  of  Limitations  of  Ken- 
tucky, which  prescribed  fifteen  years  as  the  limitation  for  actions 
upon  bonds,  and  only  five  years  for  actions  on  simple  contracts. 
The  action  was  upon  coupons  of  certain  bonds  issued  by  the  city 
of  Lexington,  and  the  city  set  up  the  statute  of  limitations  of  five 

1  City  v.  Lamson,  9  Wall.  477.  "  Clark  v.   Iowa   City,   20   Wall.  5S3, 

588. 

314 


SUITS  UPON  COUPONS.  [§  340. 

years  in  defence;  but  the  Supreme  Court  of  the  United  States 
answered  that  bonds  are  specialties  not  falling  within  the  period 
prescribed ;  that  suits  on  the  bonds  might  be  maintained  if  com- 
menced within  fifteen  years  after  the  cause  of  action  accrued ; 
and  that  a  suit  on  a  coupon  is  not  barred  by  the  statute  unless 
the  lapse  of  time  be  sufficient  to  bar  also  a  suit  upon  the  bond, 
as  the  coupon  is  but  a  repetition  of  the  bond  in  respect  to  the 
interest  for  the  period  of  time  therein  mentioned,  and  partakes  of 
its  nature.1 

1  City  of  Lexington  v.  Butler,  14  Wall.  282 ;   McCoy  v.  Washington  Co.  3  Wall. 
Jan.  381. 

315 


CHAPTER  X. 

CONTRACTS   OF   GUARANTY   AND   INDORSEMENT. 


I.  Nature   of  the  contracts  of   guaranty 
and  indorsement,  341-349. 


II.  Corporations  cannot  enter  into  the 
contract  without  legislative  authority, 
350-356. 


Nature  of  the  Contracts  of  Guaranty  and  Indorsement. 

341.  The  contract  of  a  guarantor  is  collateral,  secondary, 
and  contingent. — It  binds  him  to  pay  the  debt  guaranteed,  if  by 
the  exercise  of  due  diligence  it  cannot  be  collected  from  the  prin- 
cipal debtor.  The  contract  of  a  surety  is  on  the  other  hand  direct, 
and  makes  him  responsible  at  once  upon  the  default  of  the  prin- 
cipal debtor.  The  contract  of  an  indorser  of  a  negotiable  instru- 
ment is  different  from  either.  He  undertakes  to  pay  the  obliga- 
tion, in  case  of  its  dishonor,  if  it  is  duly  presented  for  payment  to 
the  maker  at  maturity,  and  due  notice  is  given  to  him  of  its  dis- 
honor, but  not  otherwise.  His  contract  differs  from  that  of  a 
guarantor  chiefly  in  the  matter  of  making  demand  upon  the  maker 
and  giving  notice  of  dishonor ;  for  while  punctual  presentment 
and  punctual  notice  of  non-payment  are  requisite  to  charge  an 
indorser,  in  the  case  of  a  guarantor  presentment  and  notice 
within  a  reasonable  time  is  all  that  is  required,  and  this  reason- 
able time  is  ordinarily  determined  by  the  inquiry  whether,  by 
reason  of  delay,  the  guarantor  has  sustained  any  loss  or  injury. 

342.  Under  a  guaranty  of  a  coupon  bond  the  degree  of 
diligence  required  of  the  holder  of  a  coupon  is  to  be  ascertained 
by  reference  to  the  relation  of  the  parties,  and  to  the  injury  sus- 
tained by  the  guarantor  from  the  delay.  This  point  was  well  con- 
sidered in  a  suit  against  the  State  of  Virginia  upon  its  guaranty 
of  the  negotiable  bonds  of  the  city  of  Wheeling,  issued  to  pay  the 
city's  subscription  to  the  stock  of  the  Baltimore  and  Ohio  Rail- 
road Company.  A  number  of  coupons  for  interest  due  upon  these 
bonds  for  the  years  18G2,  1863,  and  for   January,  1864,  were 

316 


NATURE   OF   THE   CONTRACTS.  [§  343. 

stolen  from  the  state,  and  in  November  of  the  latter  year  were 
bought  in  Richmond  by  one  who  paid  full  value  for  them  with- 
out knowledge  that  they  had  been  stolen.  After  the  close  of  the 
civil  war,  in  1865,  the  purchaser  presented  them  for  payment  at 
the  banking  house  in  New  York  where  they  were  made  payable, 
and  also  to  the  city  of  Wheeling ;  but  payment  being  refused,  he 
brought  suit  against  the  State  of  Virginia  upon  its  guaranty.  The 
city  of  Wheeling  was  ready  to  pay  the  coupons  whenever  the 
question  of  their  ownership  should  be  determined.  The  Court  of 
Appeals  of  Virginia  held  that  the  state  was  not  liable  upon  its 
guaranty  of  these  coupons  by  reason  of  the  delay  in  presenting 
them  for  payment.1  Mr.  Justice  Joynes,  delivering  the  opinion  of 
the  majority,  said  :  "  The  state  has  a  right  to  claim  that  they  shall 
be  presented  for  payment  within  a  reasonable  time  after  they  be- 
come payable,  so  that  it  may  be  relieved  from  its  liability  as  guar- 
antor ;  and  the  coupons  on  their  face  give  notice  of  the  guaranty. 
It  cannot  be  supposed  that  the  state  would  be  willing  to  incur  a 
responsibility  wholly  indefinite,  in  point  of  time,  which  would  be 
the  case  if  the  coupons  were  designed  to  circulate,  without  any 
limit,  after  the  day  of  payment.  It  is  no  answer  to  say  that  the 
city  of  Wheeling  has  provided  by  a  mortgage  for  the  indemnity  of 
the  state.  The  security  may  be  lost,  or  its  value  impaired  by  de- 
lay ;  and  the  state,  by  accepting  that  security,  did  not  abandon 
the  character  of  guarantor  and  assume  that  of  principal  debtor." 

343.  A  guaranty  of  bonds  without  other  designation  im- 
plies a  guaranty  of  the  principal  sum,  and  of  its  incident,  the  in- 
terest.2 

A  city  having  issued  bonds  to  a  gas  company,  under  an  ordi- 
nance providing  that  the  company  should  "guarantee  tin;  said 
bonds,  and  assume  the  payment  of  the  principal  thereof  at  matu- 
rity," it  was  held  that  the  ordinance  contemplated  two  undertak- 
ings by  the  company:  one  to  the  bondholder  to  answer  lor  the 
city's  liability  ;  the  other  to  the  city  to  pay  the  bonds  at  their  ma- 
turity. The  indorsement  of  the  president  of  the  company  on  the 
bonds,  guaranteeing  "the  payment  of  the  principal  and  interest 
thereof,"  was  asubstantial  compliance  with  the  ordinance.8 

i  Arcnts  v.  Commonwealth,  18  Gratt.  b  Jefferson  City  Gas  Light  Co.  v.  Clark, 
(Va.)  750,  :::..  Sup.  Ct.  of  the  I  .  S.  <  >cl .  T.  I  s77. 

2  New  Orleans  v.  Clark,  95  U.  S.  044. 

817 


§§  844,  345.]  GUARANTY    AND   INDORSEMENT. 

It  is  a  sufficient  consideration  for  a  guaranty  by  one  railroad  com- 
pany, of  the  payment  of  the  interest  coupons  of  another  company, 
that  an  arrangement  has  been  entered  into  between  the  roads  to 
secure  a  uniform  gauge,  and  thus  increase  the  business  of  each.1 

344.  The  principal  creditor  is  in  equity  entitled  to  the 
benefit  of  bonds  of  a  corporation  received  by  a  surety,  or 
by  a  person  standing  in  the  position  of  a  surety,  for  his  indem- 
nity, and  to  discharge  the  debt  he  is  liable  for  ;  and  it  makes  no 
difference  that  the  principal  creditor  did  not  know  of  this  at  the 
time,  or  give  credit  on  the  faith  of  it.2 

A  guarantor  having  paid  a  part  only  of  the  debt  of  the  princi- 
pal debtor  for  which  the  guaranty  was  given,  cannot  claim  reim- 
bursement out  of  the  funds  of  such  debtor  as  against  the  common 
creditor  until  the  latter  is  fully  satisfied.3 

A  guarantor  of  railroad  bonds  who  has  paid  the  debt  is  en- 
titled as  a  creditor  to  the  benefit  of  a  statute  authorizing  the  ap- 
pointment of  a  receiver  of  an  insolvent  railroad,  canal,  or  turnpike 
company,  upon  the  application  of  a  creditor,  and  a  sale  or  lease 
of  the  property.4 

345.  A  contract  of  guaranty  of  a  coupon  bond  transfer- 
able by  delivery  is  itself  in  effect  negotiable  at  law  with  the 
bond  or  coupons  ;  for  if  not  actually  negotiable  through  the  ne- 
gotiability of  the  bond  and  coupons,  it  is  assignable  with  them 
in  equity,  and  an  interest  in  it  passes  in  equity  to  each  succes- 
sive holder  of  the  bond  or  coupons.  It  is  the  manifest  inten- 
tion of  the  parties  that  the  right  to  enforce  the  guaranty  shall  be 
coextensive  with  the  right  to  enforce  the  payment  of  the  debt. 
The  guaranty,  as  an  accessory  to  the  bond  or  coupon,  follows  it 
and  adheres  to  it  in  equity,  and  the  right  to  enforce  the  guaranty 
must  be  determined  by  the  right  to  demand  payment  of  the  bond 
or  coupon.  Whoever  is  entitled  to  enforce  the  bond  or  coupon  is 
entitled  to  enforce  the  guaranty,  and  cannot  be  defeated  by  any 
equities  that  do  not  affect  his  claim  upon  these  primary  demands.5 

1  Connecticut  Mut.  Life  Ins.  Co.  v.  i  Pennsylvania  R.  Co.  v.  Pemberton  & 
Cleveland,  Columbus  &  Cincinnati  R.  R.     N.  Y.  R.  R.  Co.  28  N.  J.  Eq.  338. 

Co.  41  Barb.  (N.  Y.)  9.  5  Arents  v.  Commonwealth,  18  Gratt. 

2  Rice's  Appeal,  79  Pa.  St.  168.  (Va.)  750  ;  Blakely  Ordnance  Co.  in  re,~L. 

3  Virginia  v.  Chesapeake  &  Ohio  Canal  R.  3  Ch.  App.  154  ;  Agra  &  Masterman's 
Co.  32  Md.  501.  Bank  in  re,  L.  R.  2  Ch.  App.  397. 

318 


NATURE  OF  THE  CONTRACTS.       [§§  346,  347. 

346.  A  guaranty  is    not    provable    in    bankruptcy  or    in 
schemes  of  liquidation  without  express  provision,  until  the 
liability  becomes  absolute  by  the  failure  of  the  principal  debtor 
to  pay  the  obligation  at  maturity  according  to  its  terms.     Until 
the  liability  becomes  absolute,  there  is  no  way  in  law  or  in  equity 
by  which  persons  holding  a  guaranty  can  secure  himself  out  of 
the  property  of  the  guarantor.     Neither  is  the  holder  of  bonds 
guaranteed  by  a  corporation  entitled  to  share  as  a  creditor  in  a 
scheme   of    reorganization  entered   into    upon   the  insolvency   of 
the  corporation,  under  which  provision  is  made  for  the  participa- 
tion  only  of    creditors  holding   existing  liabilities  of  the  corpo- 
ration.    Thus,  the  Eastern  Railroad  Company  of  Massachusetts, 
having  become  greatly  embarrassed,  and  practically  insolvent,  a 
statute  was  enacted  for  its  relief,  and  the  securing  of  its  debts 
ami  liabilities.1     This  act  authorized  the  corporation,  by  a  mort- 
gage of  all  its  property  to  trustees,  to  secure  an  extension  of  its 
debts  for  a  period  of  thirty  years  at  a  reduced  rate  of  interest. 
The  existence  of  the  corporation  was  preserved,  but  the  stock- 
holders had  only  the  ultimate  chance  of  redeeming  the  property. 
A  leading  purpose  of  the  act  was  to  give  to  all  its  actual  creditors, 
without  regard  to  the  nature  of  their  claims,  an  equal  participa- 
tion  in  the  mortgage  security.     The  owners  of  certain  bonds  of 
another  railroad  company,  indorsed  and  guaranteed  by  the  East- 
ern Railroad  Company,  claimed  the  right   to   participate  in  the 
benefits  of  this  mortgage.     The  guaranteed  bonds  had  not  fallen 
due,  and  there  had  been  no  default  in  the  payment  of  the  interest 
upon  them.     The  holders  of  the  guaranteed  bonds  did  not,  there- 
fore, claim  immediate  participation,  but  asked  to  have  certificates 
of  indebtedness  set  aside  to  an  amount  sufficient  to   secure  the 
guaranty  of  the  bonds,  and  in  default  of  the  payment  of  the  in- 
terest or  principal  of  the  bonds,  they  claimed  the  right  to  receive 
the  interest  on  such  certificates,  and  to  share  in  the  security.     But 
the  court  denied  the  claim  upon   the  ground  that  no  provision 
was  made  tor  contingent  claims.2 

347.  In  the  recent  case  of  the  Eastern  Railroad  Company  v. 
Rogers,  before  the  Supreme  Court  of  Massachusetts,8  the  holders 

i  Art,  1876,  Ch.  236.  :1   124  Mass.  527. 

2  Merchants'  Nat.  Bank  '•.   Eastern  K. 
B.  Co.  1^4  Blau.  518. 

319 


§  347.]  GUARANTY    AND   INDORSEMENT. 

of  the  bonds  of  a  leased  road  guaranteed  by  that  company  sought 
to  add  to  the  value  and  obligation  of  a  common  guaranty  a  trust 
to  retain  and  hold  the  earnings  of  the  leased  road  for'the  pay- 
ment of  the  interest  on  the  guaranteed  bonds.  The  Eastern 
Railroad  Company  in  New  Hampshire  leased  its  road  for  a  long 
terra  of  years  to  the  Eastern  Railroad  Company  of  Massachusetts. 
Subsequently  the  Portsmouth,  Great  Falls,  and  Conway  Railroad 
Company  became  a  party  to  the  agreement.  The  scheme  of  the 
three  companies,  as  stated  by  Judge  Morton,  in  delivering  the 
opinion  of  the  court,  seems  to  have  been  to  form  a  single  or  con- 
solidated line  of  railroads  so  far  as  they  could  without  violating 
the  laws  of  the  states  in  which  they  were  respectively  incorpo- 
rated. The  Portsmouth,  Great  Falls,  and  Conway  Railroad  Com- 
pany was  to  complete  its  road  and  appurtenances  out  of  its  capital 
stock  or  otherwise,  at  its  own  cost  and  expense.  After  it  was 
completed  the  Eastern  Railroad  Company  was  to  manage  the 
three  roads  and  to  pay  out  of  the  net  earnings  of  the  consolidated 
line  dividends  to  the  stockholders  of  the  several  roads  pari  passu, 
and  these  dividends  were  to  be  in  lieu  of  and  in  full  for  the  rent 
of  the  leased  roads. 

After  the  agreements  were  made,  it  was  found  that  the  Ports- 
mouth, Great  Falls,  and  Conway  Railroad  Company  was  not  able 
to  perform  its  contract  and  to  construct  and  complete  its  railroad 
from  its  capital  stock  or  other  resources.  To  enable  it  to  do  so,  it 
borrowed  of  the  Eastern  Railroad  Company  a  large  sum  of  money. 
A  part  of  the  sum  so  borrowed  was  repaid  by  issues  of  stock. 
The  balance,  amounting  to  one  million  dollars,  was  repaid  by  issu- 
ing to  the  Eastern  Railroad  Company  bonds  of  the  Portsmouth, 
Great  Falls,  and  Conway  Railroad  Company,  payable  in  1892, 
with  interest  at  the  rate  of  seven  per  cent,  payable  semi-annually. 
The  Eastern  Railroad  Company  negotiated  and  sold  a  part  of 
these  bonds,  and  pledged  others  of  them,  guaranteeing  their  pay- 
ment. The  holders  of  the  bonds  now  claimed  that  they  were 
entitled  to  have  the  interest  on  them  as  it  accrues  paid  out  of  the 
earnings  of  the  road  in  priority  of  the  other  creditors.  They 
based  their  claim  upon  a  provision  of  the  lease  that  out  of  the 
gross  amount  of  the  tolls  and  income  of  the  railroads  there  should 
be  deducted  and  paid  all  charges  and  expenses  of  the  lessee  com- 
pany in  maintaining  and  operating  the  roads,  taxes,  rents,  repairs, 
wages,  damages  being  enumerated  with  other  things,  "  and  gener- 
320 


NATURE   OF   THE   CONTRACTS.  [§  347. 

ally  all  charges  that  may  be  incurred  in  the  management  of  the 
business  or  concerns  of  the  said  railroads,  or  any  part  thereof,  and 
all  incidental  charges  and  expenses,  and  the  interest  that  may 
accrue  on  any  past  or  future  loans.'' 

Upon  the  subsequent  insolvency  of  the  Eastern  Railroad  Com- 
pany and  the  adoption  of  the  legislation  before  referred  to  for  its 
relief,  the  holders  of  the  guaranteed  bonds  claimed  that  either  the 
Eastern  Railroad  Company  took  the  earnings  of  the  Portsmouth, 
Great  Falls,  and  Conway  Railroad  charged  with  a  trust  to  pay 
the  interest  on  their  bonds,  or  that  the  interest  on  these  bonds  is 
to  be  regarded  as  in  the  nature  of  rentals  or  operating  expenses. 
The  court  in  reply  say  :  "  We  cannot  concur  in  this  view  of  the 
purpose  or  effect  of  the  article.  As  we  have  before  said,  it  was 
contemplated  as  a  part  of  the  arrangement  between  the  parties 
that  the  Eastern  Railroad  Company  should,  as  rent  or  in  lieu 
of  rent  of  the  leased  roads,  pay  to  their  stockholders,  pari  passu 
with  its  own  stockholders,  dividends  out  of  the  net  earnings  of  the 
three  roads.  It  was  natural  and  almost  necessary,  in  order  to 
avoid  future  misunderstanding  and  litigation,  that  the  contracts 
should  contain  provisions  as  to  the  mode  of  determining  what 
should  be  deemed  to  be  net  earnings.  We  think  this  was  the 
purpose  of  the  fourth  article,  and  that  it  was  intended  for  the  di- 
rection and  protection  of  the  Eastern  Railroad  Company,  and  not 
to  enlarge  its  liabilities.  It  contains  no  words  of  covenant  or 
promise  on  the  part  of  the  Eastern  Railroad  Company.  It  pro- 
vides merely  that  '  from  and  out  of  the  gross  amount  of  the  tolls 
and  income  of  the  railroads  owned  by  the  said  parties  hereto 
respectively  shall  be  deducted  and  paid  from  time  to  time'  the 
charges,  expenses,  and  payments  enumerated,  including  '  the  in- 
terest that  may  accrue  on  any  past  or  future  loans.'  By  this  was 
in 'iiit  tin;  interest  which  the  Eastern  Railroad  Company  might 
pay  upon  its  loans.  To  hold  that  it  was  intended  as  a  covenant 
that  it  would  pay  tin;  interest  on  any  money  which  (he  Lessor  might 
borrow  would  be  inconsistent  with  the  previous  stipulations  of  the 
contract,  by  which  the  lessor  agreed  bo  complete  the.  road  at  its 
own  cost  and  expense,  and  by  which  the  only  rent  to  be  paid  by  the 
■  •  was  in  the  form  of  dividends.  No  Language  is  used  in  this 
artie]<-  which  purports  to  create  any  new  Liability  of  the  Eastern 
Railroad  <  'ompany.  If  enumerates  various  charges  and  expenses 
which  the  company  may  incur  in  the  management  of  the  roads, 
21  821 


§§  348,  349.]  GUARANTY    AND   INDORSEMENT. 

but  its  liability  to  pay  those  charges  and  expenses  is  not  created 
by  this  article,  but  out  of  other  independent  contracts  or  duties." 
For  these  plain  and  sufficient  reasons  the  court  necessarily  held 
that  the  holders  of  the  guaranteed  bonds  of  the  Portsmouth, 
Great  Falls,  and  Conway  Railroad  Company  had  no  claim  upon 
the  earnings  of  the  Eastern  Railroad  Company ;  that  the  latter 
company  was  primarily  liable  to  pay  the  bonds  and  the  interest 
as  it  accrues  ;  that  the  only  liability  of  the  Eastern  Railroad  Com- 
pany was  a  contingent  and  a  collateral  liability,  arising  from  its 
contract  of  guaranty.  It  followed  that  it  was  not  the  duty  or 
the  right  of  the  Eastern  Railroad  Company  to  apply  the  earn- 
ings of  its  railroad  to  the  payment  of  the  interest  on  the  bonds 
of  the  Portsmouth,  Great  Falls,  and  Conway  Railroad  Company, 
as  it  might  from  time  to  time  accrue  and  become  due. 

348.  Indorsement  of  a  bond.  —  A  railroad  company  which 
has  transferred,  by  indorsement,  a  negotiable  bond  issued  by  a 
municipal  corporation,  is  bound  as  an  indorser  of  negotiable  paper, 
if  its  liability  be  fixed  by  a  proper  demand  and  notice.  It  has 
been  suggested  that  such  a  liability  is  not  fairly  in  the  contempla- 
tion of  the  parties  to  an  indorsement  of  a  bond  which  may  have 
twenty  or  even  forty  years  to  run  ;  but  whatever  force  this  view 
might  have  in  case  of  an  indorsement  of  such  an  instrument  by  an 
individual,  it  has  none  in  case  of  a  corporation,  which  does  not  die.1 

349.  A  bona  fide  holder  may  presume  that  an  indorsement 
is  regular.  —  The  indorsement  by  the  State  of  Alabama  of  the 
bonds  of  the  Montgomery  and  Eufaula  Railroad  Company  was 
claimed  to  be  void,  because  the  statute  authorized  the  indorsement 
of  first  bonds  only,  while,  as  it  was  alleged,  there  was  a  prior 
mortgage  upon  the  company's  property,  and  the  bonds  could  not, 
therefore,  be  first  mortgage  bonds.  "  Let  us  concede,"  said  Jucjge 
Woods,  of  the  Circuit  Court  of  the  United  States,2  "  what  defend- 
ants claim,  that  there  was  a  prior  mortgage  on  the  road  at  the 
date  of  these  bonds.  Were  the  holders  of  the  bonds  under  the 
necessity  of  taking  notice  of  that  fact,  and  does  the  fact  make  the 
bonds  void  in  the  hands  of  a  bond  fide  holder  for  value  ?  If  the 
governor  was  without  any  authority  to  indorse  any  bonds,  his  in- 

1  Bonner  v.  City  of  New  Orleans,  2  2  Young  v.  Montgomery  &  Eufaula  R. 
Woods,  135.  R.  Co.  2  Woods,  606. 

322 


CORPORATIONS   CANNOT   ENTER   INTO  WITHOUT   AUTHORITY.    [§  350. 

dorsement  would  be  void.     If  the  law  authorized  him  to  indorse 
the  bonds  of  the  A.  and  C.  railroad,  and  he  undertook  to  indorse 
the  bonds  of  the  South  and  North  Alabama  Railroad,  his  indorse- 
ment would  be  void.     But  in  this  case  there  is  no  dispute  that 
the  law  authorized  him  to  indorse  the  bonds  of  the  Montgomery 
and  Eufaula   Railroad,   on   the   conditions  that  there   should  be 
completed  and  equipped  twenty  miles  of  road  before  any  indorse- 
ment, and  that  the  indorsement  should  not  exceed  $16,000  per 
mile  of  completed  railroad,  and  that  the  bonds  indorsed  should  be 
first  mortgage  bonds.     The  authority  of  the  governor  to  indorse 
such  bonds  on  such  conditions  is  not  disputed.     Now,  suppose  the 
governor  indorses  such  bonds  of  a  railroad  company  before  twenty 
miles  of  its  road  are  completed  and   equipped,  or  indorses  the 
bonds  at  a  rate  greater  than  $16,000  per  mile,  are  the  bonds  on 
that  account  void  in  the  hands  of  a  bond  fide  holder?     The  un- 
broken authority  of  cases  decided  by  the  Supreme  Court  of  the 
United  States  is  to  the  effect  that  such  bonds  are  valid.1  ....  But 
do  these  authorities  cover  the  case  where  an  indorsement  is  author- 
ized of  first  mortgage  bonds,  and  the  governor  indorses  bonds  of  a 
railroad  company  whose  property  is  subject  to  a  prior  mortgage? 
After  some  hesitation  I  have   come  to  the  conclusion  that  they 
do The  legal  authority  to  make  the  indorsement  is  suffi- 
ciently comprehensive  to  include  the  indorsement  of  the  bonds  in 
question  ;  and  the  governor  having  placed  his  indorsement  upon 
the  bonds,  and  certified  in  the  indorsement  itself  that  it  was  made 
in  pursuance  of   the  act  of  the  legislature,  I   think  a  bond  fide 
holder  has  the  right  to  presume  that  all  precedent  requirements 
have  been  complied  with,  and  that  there  are  no  prior  liens  upon 
the  railroad  ;  and,  so  far  as  he  is  concerned,  this  presumption  can- 
not be  rebutted." 

II.    Corporations  cannot  enter  into  these  Contracts  without  Legis- 
lative Authority. 

350.  It  is  no  part  of  the  ordinary  business  of  a  railroad 
company  or  other  corporation  to  undertake  the  payment  of 
the   debts    of    others;-  and    therefore,    without    Legislative  au- 

1  Citing  Knox  County  v.  Aspinwall,  21  Kern.  (N.  V.)  309  ;  Smead  '•.  Indianapolis, 

Bow.  539;  Mercer  Co.  v.  Hacket,  l  Wall.  Pittsburg  &  Cleveland  R.  R.  <'"•  11   Ind. 

83;  Meyer  v.  City  of  Muscatine,  lb.  384.  104;  Stark  Bank  v.  United  States  Pottery 

-  Bank  of  Genesee  v.  Patchin   Bank,  -'i  Co.  84   Vt.  144;    Madison  < '".  v.   Water- 

828 


§  351.] 


GUARANTY   AND   INDORSEMENT. 


thority  in  this  behalf,  a  corporation  has  no  power  to  enter  into 
the  engagement  of  a  guaranty  or  indorsement  of  the  bonds  or  other 
negotiable  instruments  of  another  corporation,  or  of  a  person  ;  or 
to  enter  into  the  more  indirect  engagement  of  guaranteeing  the 
dividends  of  another  company;1  or  of  purchasing  the  stock  of 
another  company;2  or  of  completing  the  line  of  a  railroad  com- 
pany under  an  agreement  to  work  the  line  ; 3  or  of  aiding  in  the 
extension  or  improvement  of  another  railroad  company.4 

Legislative  authority  to  railroad  and  other  corporations  to  enter 
into  the  contract  of  guaranty  is  most  frequently  given  by  special 
statute,  although  there  are  some  general  statutes  for  this  purpose.5 

Neither  can  corporations,  according  to  the  rule  adopted  in  this 
country,  purchase,  hold,  or  deal  in  the  stock  of  other  corporations, 
unless  expressly  authorized  to  do  so.6 

Neither  can  a  railroad  company,  without  special  authority  guar- 
antee a  certain  amount  of  dividends  on  its  own  stock,  although 
such  contract  be  made  with  a  county  as  an  inducement  for  the 
county  to  take  stock  in  the  company  and  pay  for  it  with  county 
bonds.7 

351.  To  enable  a  railroad  corporation  to  enter  into  a  con- 
town  Co.  7  Wis.  59;  Central  Bank  v.  or  under  the  general  railroad  act;  and 
Empire  Stone  Dressing  Co.  26  Barb.  (N.  may  with  like  assent,  become  surety  for, 
Y.)  23 ;  Bridgeport  Bank  v.  Same,  30  lb.     or  guarantee  the  debts  of  such  railroad 


421 ;    Farmers'  Bank  v.  Same,  5  Bosw. 
(N.  Y.)  275. 

1  Colman  v.  Eastern  Ry.  Co.  10  Beav. 
1.  See  Logan  v.  Courtown,  13  Beav.  22. 

2  Mechanics',  &c.  Building  Asso.  v. 
Meridcn  Agency  Co.  24  Conn.  159  ;  Solo- 
mons v.  Laing,  12  Beav.  339. 

3  Great  "Western  Ry.  Co.  v.  Preston  & 
Berlin  Ry.  Co.  17  Upp.  Can.  Q.  B.  477 


company,  or  in  any  other  manner  aid  such 
railroad  company  in  the  construction  of 
its  railroad  or  other  works  or  improve- 
ments. Acts  1877,  ch.  88;  Acts  1872-3, 
ch.  88,  §  40.  In  Massachusetts  guaran- 
ties by  railroad  companies  in  certain  cases 
are  provided  for.     See  §  45. 

6  Zabriskie  v.  Cleveland,   Columbus  & 
Cincinnati  R.  R.  Co.  23  How.  381 ;  White 


*  East    Anglian   Rys.   Co.   v.  Eastern  v.  Syracuse  &  Utica  R.  R.  Co.  14  Barb. 

Counties  Ry.  Co.  11  C.  B.  775  ;  McGregor  (N.  Y.)  559  ;   Connecticut  Mut.  Ins.  Co. 

v.  Deal  &  Dover,  &c.  Ry.  Co.  18  Q.  B.  v.  Cleveland,  Columbus  &  Cincinnati  R. 

618.  R.    Co.  41    Barb.  (N.  Y.)9;    Mayor  v. 

5  As  in  West  Virginia,  where  any  Bait.   &    Ohio    R.   R.   Co.   21   Md.   50; 

railroad  or  other  private  corporation,  or  Mechanics',  &c.  Building  Asso.  v .  Meriden 

joint  stock  company  may,  with  the  assent  Agency  Co.  24  Conn.  159  ;  Hodges  v.  New 

of  the  holders  of  two  thirds  of  its  stock,  Eng.  Screw  Co.  1  R.  I.  312,  322;  Central 

had  by  a  vote  at  a  stockholders'  meeting)  R.  R.  Co.  v.  Collins,  40  Ga.  582. 

subscribe  for  or  purchase  the  stock,  bonds,  7  Pittsburg  &  Steubenville  R.  R.  Co.  v. 

or  securities   of    any   railroad   company,  Allegheny  County,  79  Pa.  St.  210. 
whether  incorporated  by  special  charter 

324 


CORPORATIONS    CANNOT   ENTER   INTO   WITHOUT    AUTHORITY.       [§  351. 

tract  of  guaranty  it  is  not  necessary  that  the  authority  to  do 
so  should  be  expressly  conferred  by  statute.  Under  the  rail- 
road act  of  California,  which  provided  that  such  a  corporation 
"  shall  be  capable  in  law  to  make  all  contracts  ....  necessary 
for  the  construction,  completion,  and  maintenance  of  such  rail- 
road ;  .  .  .  .  and  generally  shall  possess  all  the  powers  and  priv- 
ileges, for  the  purpose  of  carrying  on  the  business  of  the  corpora- 
tion, that  private  individuals  and  natural  persons  enjoy,"  1  it  was 
held  that  a  railroad  company  might  make  a  valid  guaranty  of  the 
bonds  of  another  corporation.  The  guaranty  in  this  case  was 
entered  into  as  a  part  of  a  leasehold  agreement  whereby  the  Cali- 
fornia Pacific  Railroad  Company  leased  its  road  to  the  Central 
Pacific  Railroad  Company  for  a  long  term  of  years,  and  the 
latter  company  stipulated  to  guarantee  the  payment  of  $2,000,- 
000  of  the  bonds  of  the  lessor  company,  payable  in  thirty  years. 
The  court  held  that  this  stipulation  was  not  ultra  vires.  The 
reasoning  of  the  court  was  that  a  natural  person  might  make  such 
a  contract,  and  therefore  the  exercise  of  this  power  by  the  corpo- 
ration must  be  upheld,  unless  by  its  very  nature  it  is  a  power 
which  a  corporation  cannot  exercise  ;  but  that  there  is  no  suffi- 
cient reason  deducible  from  the  character  of  a  railroad  company 
and  its  business,  why  it  may  not  guarantee  the  payment  of  a  debt 
which  it  might  directly  contract  to  pay.2 

This  decision  does  not  seem  to  be  supported  by  sound  legal 
principles  and  reasoning.  It  has  been  vigorously  criticised.  A 
writer  in  the  American  Law  Register,3  with  reference  to  the  gen- 
eral power  of  a  railroad  corporation  to  make  such  a  guaranty, 
says  :  "  In  the  case  of  a  lease  by  one  railroad  corporation  to  an- 

1  Stats.   1861,  p.  GOS  ;    and  see  to  like  tiou  of  the  rule  always  recognized  by  the 

effect  Civil  Code,  §  354.  courts,   that    the    implied    or    incidental 

3  Low  v.  California  Pacific  It.  It.  Co.  9  powers  which  may  he  exercised  by  a  cor- 

Am.    Railw.    1!.  366  ;    4    C.  L.  J.  487.  poration  shall  he  ascertained  by  reference 

McKinstry,  J.,    dissenting,    said  in   refer-  to  the  case  of  an  individual  upon  whom 

ence  to  the  clause    of  the  statute  relied  should   he  conferred  limited  powers  like 

upon    as    impliedly  giving    authority    to  those  granted  to  the  corporation    bv  its 

the  guaranty:  "This  clause  gives  charter.     [£  the  claim  quoted  means  more 

no  additional  primary  powers  to  the  cor-  than  this,  what  does  it  mean  less  than  a 

poration.     It  follows  after  the  enumera-  grant   to  the  corporation  of  every  power 

Hon   of  certain   powers   specifically   con-  which  may  he  employed  by  an  individual 

furred,  and  is  hut  declaratory  of  the  rule  carrying  on  a  private  business  for  his  per- 

that    powers    incidental    to    the    express  sonal  emolument." 
powers  conferred  may  he  employed  by  a        a  Vol.  25,  pp.  513,  518. 
corporation.     It  is  a  legislative  enuncia 

825 


§  352.]  GUARANTY   AND  INDORSEMENT. 

other  railroad  corporation,  the  lessee  pays  its  own  debt  when  it 
pays  the  rent,  which  it  owes  as  rent,  and  which  it  has  agreed  to 
pay  as  rent ;  in  the  case  of  a  guaranty  by  the  lessee  of  the  bonds 
of  the  lessor,  should  the  guarantor  be  compelled  to  pay  the  bonds, 
principal  or  interest,  or  any  part  thereof,  in  pursuance  of  its  con- 
tract of  guaranty,  it  pays  an  indebtedness  of  the  lessor  company, 
and,  consequently,  may  compel  a  reimbursement  thereof.  In  the 
former  case  it  pays  as  principal  ;  in  the  latter,  as  surety.  The 
former  contract,  however  unwise  it  might  be,  the  railroad  com- 
pany has  the  power  (by  statute)  to  make ;  and,  consequently,  may 
agree  to  pay  the  rent  on  the  lease,  the  amount  of  the  rent  being 
simply  a  question  of  degree  ;  the  latter  species  of  contract,  it  seems 
to  us,  it  has  not  the  power  to  make,  there  being  no  express  statu- 
tory power  to  that  effect,  as  it  is  in  reality  the  loaning  of  the 
credit  of  the  guarantor,  —  the  guaranty  of  the  debt  of  another. 
The  contract  of  guaranty,  ex  vi  termini,  implies  a  loan  of  the 
credit  of  the  guarantor."  Neither  is  there  any  power  to  guarantee 
implied  in  the  power  to  lease,  nor  is  it  appurtenant  to  the  power 
to  lease.  The  power  to  lease  and  the  power  to  guarantee  are  as 
diverse  as  powers  can  well  be.  The  statute  confers  on  railroad 
corporations  the  powers  of  natural  persons  no  further  than  is  nec- 
essary "  for  the  purpose  of  carrying  on  the  business  of  the  corpora- 
tion." The  business  of  a  leased  railroad  may  be  carried  on  with- 
out the  lessee's  guaranteeing  the  bonds  of  the  lessor,  and  there- 
fore such  guaranty  is  not  necessary  for  the  purpose  contemplated 
by  statute.  If  a  railroad  corporation  is  to  possess  all  the  powers 
of  a  natural  person  in  the  broadest  acceptation  of  the  term,  wherein 
would  be  the  use  of  legislation  seeking  to  prescribe  its  powers  ? 1 

352.  The  right  to  enter  into  the  contract  may  be  implied 
from  authority  to  aid  another  company.  — A  railroad  company 
may  guarantee  the  bonds  of  another  railroad  company  under  the 
authority  of  a  general  statute  which  authorizes  railroad  companies 
to  aid  other  railroad  companies  by  means  of  subscription  to  their 
capital  stock  or  otherwise.  If  any  acceptance  of  the  statute  by 
either  of  the  corporations  is  necessary,  this  may  be  inferred  in 
favor  of  persons  holding  guaranteed  bonds  from  the  fact  that  the 
companies  have  done  the  acts  authorized  by  these  statutes.2 

1  25  Am  Law  Reg.  522.  2  Zabriskie  v.  Cleveland,  Columbus  & 

Cincinnati  R.  R.  Co.  23  How.  381. 
326 


CORPORATIONS  CANNOT  ENTER  INTO  WITHOUT  AUTHORITY.  [§§  353-355. 

353.  A  corporation  may,  as  a  matter  of  course,  indorse  ne- 
gotiable instruments  which  it  has  taken  in  the  course  of  busi- 
ness or  in  the  payment  of  debts  due  it,  without  special  authority 
to  do  so.1  This  would  be  true  of  corporations  which  have  no 
power  to  make  instruments  such  as  it  receives  and  indorses.2  A 
corporation  having  the  power  to  create  negotiable  paper  has  the 
same  power  to  indorse  it,  whether  such  power  be  implied  or  con- 
ferred.3 It  is  within  the  corporate  powers  of  a  railroad  company 
to  guarantee  bonds  taken  and  held  by  it  in  the  usual  course  of  its 
business.4  But  even  if  the  guaranty  be  made  for  a  purpose  not 
authorized  by  the  charter,  as  for  instance  for  the  accommodation 
of  another  road,  a  bond  fide  holder^for  value  without  notice  is  not 
affected  by  that  fact.5 

354.  A  railroad  company  having  power  to  issue  its  own 
bonds  may  guarantee  the  bonds  of  municipal  corporations 
issued  in  payment  of  subscriptions  to  the  stock  of  the  com- 
panjr.  The  obvious  purpose  and  advantage  of  such  a  guaranty 
are  to  augment  the  credit  of  the  bonds  in  the  market,  and  to  fa- 
cilitate their  sale,  and  the  raising  of  money  for  the  construction 
of  its  road.6  It  is,  moreover,  one  of  the  recognized  powers  of  a 
private  corporation  that  it  may  borrow  money,  or  become  a  party 
to  negotiable  paper  in  the  transaction  of  its  legitimate  business, 
unless  expressly  prohibited  ;  and  until  the  contrary  is  shown,  the 
legal  presumption  is,  that  its  acts  in  that  behalf  were  done  in  the 
regular  course  of  its  authorized  business.  In  such  case  the  cor- 
poration guarantees  its  own  property,  and  not  merely  the  debt  of 
another. 

355.  A  railroad  company  may  be  bound  by  consenting  to 

1  Olcott  v.  Tioga  R.  R.  Co.  27  N.  Y.     &  Cleveland  R.   R.  Co.  11  Ind.  104,  where 
540,  549,  561.  it  was  attempted  to  draw  a  distinction  be- 

2  Srnitli  v.  Johnson,  3  II.  &  N.  222.  tween  paper  executed  beyond  the  power 
'■'  See  Prescott  v.  Flinn,  9  Bing.  19,  per     and  that  executed  within  the  power  of  tho 

Tindall,  C.   J.;     Frye   V.    'linker,  24   111.  corporation,  but  by  an  abuse  of  the  power 

180;    Buckley   v.   Briggs,  .'so  Mo.  452;  in  that  particular  instance,  and   declare 

Hardy  v.  Merriweather,  14  Ind.  203.  that  as  applied  to  commercial  paper,  legal 

*  Madison  &  Indianapolis  R.  K.  Co.  v.  on  its  face,  it  is  difficult  to  sustain  Buch  a 

Norwich  Savings  8oc,  24  I  ml.  457.  distinction  on  any  sound  principle   of  law 

6  Madison  &  Indianapolis  R.  R.  Co.  v.  or  reason. 

Norwich   Sav.  Soc  fupra.     The  court  re-  °  Railroad  Co.  v.  Howard,  7  Wall.  392. 
fer   to  Smead    P.    Indianapolis,   rittsburg 

827 


§  355.]  GUARANTY   AND   INDORSEMENT. 

a  representation  of  guaranty  contained  in  the  bonds  of  an- 
other company,  as  for  instance  that  the  former  company  had, 
in  consideration  of  a  lease  to  it  of  the  road  of  such  other  com- 
pany, guaranteed  the  payment  of  the  interest  on  its  bonds.  The 
Pacific  Railroad  Company  of  Missouri  was  upon  this  ground  held 
liable  in  an  action  brought  directly  against  it  by  a  holder  of  cou- 
pons due  upon  bonds  issued  by  the  St.  Louis,  Lawrence,  and 
Denver  Railroad  Company.1  The  only  promise  made  by  the  de- 
fendant company  was  one  contained  in  a  lease  to  it  of  the  other 
railroad  company,  for  an  annual  rental.  The  Pacific  Railroad 
Company  was  interested  in  the  construction  and  completion  of 
the  St.  Louis,  Lawrence,  and  Denver  Road,  and  executed  the  lease 
in  order  to  enable  that  company  to  negotiate  its  bonds  and  raise 
money  to  build  the  road,  and  the  rental  was  appropriated  specifi- 
cally to  the  payment  of  the  interest  on  such  bonds.  The  bonds 
contained  a  statement  that  the  payment  of  the  interest  was  guar- 
anteed by  the  Pacific  Railroad  of  Missouri.  In  form,  the  St. 
Louis,  Lawrence,  and  Denver  Company  furnished  the  considera- 
tion for  the  promise  of  the  defendant  company,  rather  than  the 
bondholders.  In  reality,  however,  the  bondholders  furnished  the 
means  to  build  the  road,  the  use  of  which,  under  the  lease,  con- 
stituted the  consideration  of  the  defendant's  promise.  The  plain- 
tiff, however,  did  not  bring  his  suit  upon  the  promise  contained 
in  the  lease,  but  upon  the  implied  promise  contained  in  the  rep- 
resentation in  the  bonds  which  the  defendant  company  had  caused 
to  be  issued  in  this  form,  or  had  consented  to.  "  If  this  allega- 
tion can  be  proved,"  said  Judge  Dillon,  "  our  opinion  is  that  the 
defendant  is  bound  to  make  good  the  guaranty,  and  that  this 
guaranty  attaches  to,  and  follows  the  bonds,  and  is  available  to 
every  holder  of  them  who  relied  upon  it.  In  this  view  the 
promise  by  the  defendant  is  a  direct  one  to  whoever  becomes  the 
holder  of  bonds  on  the  faith  of  it,  and,  although  the  facts  are 
different,  the  case  falls  within  the  principle  of  morality,  fair  deal- 
ing, and  enlightened  justice  asserted  by  the  Supreme  Court  of  the 
United  States  in  the  cases  of  Lawrason  v.  Mason?  Woodruff  v. 
Trapnall?  Curran  v.  Arkansas  f-  Furman  v.  Nicols.b    If  the  fore- 

1  Opdyke  v.  Pacific  R.  R.  Co.  3  Dill.  3  10  How.  190,  206. 
55.  4  15  How.  304 

2  3  Cranch,  492 ;   2  Am.  Lead.  Cases,  5  8  Wall.  44,  50. 
334-362. 

328 


CORPORATIONS   CANNOT   ENTER   INTO   WITHOUT    AUTHORITY.       [§  356. 

going  is  a  correct  view  of  the  legal  relations  and  rights  of  the 
parties,  it  follows  that  the  contract  between  the  defendant  and 
the  plaintiff  was  complete  when  the  plaintiff  bought  the  bonds 
upon  the  strength  of  the  promise  or  representation  which  the  de- 
fendant authorized,  as  it  is  alleged,  to  be  made,  and  that  the 
plaintiff's  rights  are  in  no  wise  dependent  upon  whether  the  Law- 
rence Company  kept  its  contract  in  respect  to  taxes,  fences,  &c, 
and  could  not  be  affected  by  a  subsequent  rescission  of  the  con- 
tract, and  surrender  of  the  road  by  the  defendant  to  the  Law- 
rence Company." 

356.  When  a  corporation  is  estopped  to  claim  that  its  in- 
dorsement or  guaranty  was  ultra  vires.  —  Although  the  in- 
dorsement by  one  railroad  company  of  the  bonds  of  another  com- 
pany be  ultra  vires  as  in  violation  of  the  rights  of  the  stockhold- 
ers, both  the  corporation  as  an  entity  and  the  stockholders  as 
such,  may  be  estopped  from  repudiating  it,  either  by  express  rati- 
fication or  by  such  acquiescence  and  enjoyment  of  the  benefits 
of  the  contract  as  would  make  it  a  fraud  to  permit  it  to  be  set 
aside.1  If  the  holders  of  the  indorsed  bonds  can  enforce  them 
against  the  railroad  company,  individual  stockholders  cannot  re- 
strain the  company  from  voluntarily  discharging  its  liability.  To 
show  assent  and  acquiescence  it  is  not  necessary  to  prove  the  ac- 
quiescence of  each  individual  stockholder.  It  is  enough  to  show 
circumstances  from  which  it  may  be  reasonably  inferred  that  the 
contract  to  be  ratified  was  within  the  knowledge  of  all  who  chose 
to  inquire,  and  the  stockholders  had  full  opportunity  and  means 
of  inquiry. 

A  railroad  company  which  has  guaranteed  the  payment  of  the 
interest  coupons  of  another  road,  and  afterwards,  upon  coming 
into  possession  of  the  bonds,  has  sold  and  transferred  a  portion 
of  them  for  value,  is  estopped  to  claim  that  the  guaranty  was  ultra 
.  The  guaranty  was  additional  security  for  the  same  debt 
evidenced  by  the  bonds,  and  the  guaranty  passed  with  the  bonds 
to  the  purchaser  withoul  special  mention.     Even  if  the  guaranty 

was  inoperative  when  it,  was  made,  because  supported  b)    no  valid 

consideration,  or  made  for  no  authorized  purpose,  it  became  •  p  ir- 

ative  when  issued  by  the  guarantor.      The  guaranty  may  linn  l>e 
1  Cozart  v.  Georgia  R.  B.  &  Banking  Co.  54  Qa.  879. 

329 


§  356.]  GUARANTY    AND   INDORSEMENT. 

treated  as  written   at  the  time  of  the  transfer,  and  as  resting 
upon  the  consideration  the  npassing.1 

When  a  railroad  company  has  the  general  power  to  make  a 
guaranty  it  is  immaterial  to  a  purchaser  of  the  guaranteed  secu- 
rities whether  its  action  in  this  respect  be  ratified  by  a  vote  of 
the  stockholders,  although  such  ratification  is  provided  for  by 
statute,  if  the  provisions  in  this  respect  are  intended  for  the  pro- 
tection of  the  shareholders,  and  relate  chiefly  to  the  mode  or 
manner  of  the  execution  of  the  power.  Holders  of  such  coupons 
have  the  right  to  presume  that  the  guarantors  have  done  their 
duty,  and  have  proceeded  regularly  in  the  execution  of  the  power.2 

i  Arnot  v.  Erie  Ry.  Co.  67  N.  Y.  315;  Cleveland,  Columbus  &  Cincinnati  R.  R. 
aff.  5  Hun,  608.  Co.  41  Barb.  (N.  Y.)  9. 

2  Connecticut    Mut.   Life  Ins.   Co.    v. 

330 


CHAPTER  XL 


THE  DUTIES   AND   EIGHTS    OF  MORTGAGE  TRUSTEES. 


I.  Nature  of  the  trust  assumed  by  mort- 
gage  trustees,  357-362. 

II.  Effect  of  notice  to  mortgage  trustees, 
363,  364. 

III.  Rights  of  mortgage  trustees  in  posses- 
sion, 365-370. 


IV.  Removal  of  trustees  and  filling  of  va- 
cancies, 371-374. 

V.  Statutory  provisions  regulating  the 
duties  of  mortgage  trustees,  and  the 
choosing  of  new  trustees,  377-382. 


I.  Nature  of  the   Trust  assumed  by  Mortgage   Trustees. 

357.  The  nature  and  character  of  the  trust  assumed  by  one 
to  whom  a  railroad  mortgage  is  made  for  the  benefit  of  bond- 
holders depend  not  merely  upon  the  express  terms  of  the  mort- 
gage deed,  but  upon  the  implications  which  arise  from  the  rela- 
tions of  the  parties  and  the  condition  of  the  trust  property.  As 
these  circumstances  change  from  time  to  time,  the  obligations  of 
the  trustee  change  also.  Immediately  upon  the  execution  of  the 
deed,  and  so  long  as  no  active  duty  is  demanded  of  the  trustee, 
the  trust  is  little  more  than  nominal  ;  it  is  what  is  termed  a  dry, 
naked  trust.  Generally  the  trustees  have  nothing  to  do  with  the 
negotiation  of  the  bonds,  and  so  long  as  the  interest  is  promptly 
paid  so  that  no  forfeiture  occurs,  their  office  is  silent.  But  when 
a  forfeiture  has  occurred  through  the  non-payment  of  the  interest 
or  principal  secured,  or  through  the  breach  of  any  other  condition 
of  the  mortgage,  new  and  important  duties  arise.  The  mortgage 
in  terms  generally  requires  the  trustee  to  take  possession  of  the 
mortgaged  property  and  to  sell  it  for  the  benefit  of  the  bondhold- 
ers. The  fulfilment  of  these  express  trusts  in  behalf  of  the  bond- 
holders is  tli  •  primary  and  most  obvious  duty  of  the  trustee.  But 
in  the  performance  of  these  trusts,  other  trusts  arise  by  implica- 
tion in  favor  of  others  besides  the  bondholders,  and  particularly 
in  favor  of  subsequent  incumbrancers  and  the  mortgago  .  I  lie 
duties  of  the  trustees  then  become  not  only  active,  bul  responsible 
and  delicate.     They  are  then  railed  upon  to  elect  between  delay 

881 


§§  358,  359.]       THE    DUTIES    AND   RIGHTS   OF   MORTGAGE   TRUSTEES. 

and  action  ;  between,  on  the  one  Land,  taking  possession  of  the 
road  and  its  fixtures,  and  thereby  assuming  at  once  the  vast  pub- 
lic and  private  burdens  and  responsibilities  of  a  great  public 
work  ;  and  on  the  other,  delay,  and  consequent  complication  and 
loss  ;  or  they  must  undertake  the  ulterior  and  final  remedy  of 
foreclosure.1 

358.  It  is  the  duty  of  a  mortgage  trustee  to  protect  the 
security  he  has  taken  for  the  bondholders  to  the  utmost  of  his 
ability.  It  is  hardly  consistent  that  such  trustee  should  at  the 
same  time  occupy  the  position  of  construction  agent  of  the  com- 
pany. It  is  at  any  rate  fraudulent  for  such  trustee  to  confederate 
with  the  company  in  disposing  of  a  large  amount  of  iron  rails 
bought  by  the  company  for  its  use  and  embraced  in  the  mortgage 
as  after-acquired  property.  To  warrant  such  a  diversion  of  the 
property  solemnly  appropriated  to  the  construction  of  the  road 
and  the  security  of  the  bondholders  who  advanced  money  to  build 
it  would  at  least  require  the  proof  of  an  urgent  and  clear  neces- 
sity that  could  not  be  financially  provided  for  in  any  other  way.2 
The  utmost  good  faith  is  required  in  transactions  of  this  nature 
resulting  in  the  sale  of  any  portion  of  the  mortgage  property.  If 
the  trustee  be  remiss  in  his  duty  to  protect  the  security,  the  bond- 
holders may  themselves  maintain  an  action  to  prevent  a  diversion 
of  the  property. 

For  the  same  reason  a  mortgage  trustee  in  possession  of  a  rail- 
road cannot  make  a  valid  contract  for  the  leasing  of  the  road  to 
another  railroad  corporation  in  which  he  is  a  stockholder  and 
director.3 

359.  The  trustees  have  no  power  to  assent  for  the  bond- 
holders that  an  unsecured  debt  may  be  paid  in  preference  to 
their  secured  bonds.  The  fact  that  a  floating  debt  of  a  railroad 
company  has  been  contracted  for  the  payment  of  interest  on  its 
bonds,  and  for  supplies  and  repairs  for  the  benefit  of  the  com- 
pany's property,  gives  the  court  no  power  without  the  consent  of 
the  bondholders  to  direct  the  application  of  the  income  of  the  road 

i  Sturges  v.  Knapp,  31   Vt.  1,  55,  per        3  Ashuelot  R.  R.  Co.  v.  Elliot,  57  N.  H. 
Redfield,  C.  J.  397. 

2  Weetjen  v.  St.  Paul  &  Pacific   R.  R. 
Co.  4  Hun  (N.  Y.),  529. 

332 


NATURE    OF    THE   TRUST    ASSUMED   BY.  [§  860. 

to  the  payment  of  it,  although  the  trustees  of  the  bondholders  in 
a  suit  to  foreclose  the  mortgage  apply  for  authority  to  make  such 
payment,  and  it  appears  that  such  debt  could  be  paid  on  favorable 
terms,  and  that  the  payment  of  it  would  be  equitable,  and  proba- 
bly for  the  interest  of  the  bondholders  in  the  way  of  facilitating 
their  reorganization  of  the  company.1     The  court  said  that  these 
were  doubtless  strong  considerations  when  addressed  to  the  bond- 
holders themselves.      "  But    can  this  waive  the  rights  of   bond- 
holders because  we  might  think  it  would  turn  out  to  their  advan- 
tage ?     Can   we  make  a  contract  for  them  because  we  think  it 
would  be  a  good  contract  ?     Have  we  the  power  to  take  money 
which  belongs  to  them  and  give  it  to  others  without  their  consent, 
because  we  think  it  would  be  for  their  interest  ?     They  have  not 
consented  to  this  diversion  of  their  money,  and  no  one  who  is  au- 
thorized to  do  so  has  consented  for  them.     For  the  trustees  to 
undertake  to  give  assent  for  the  bondholders  is  clearly  outside  of 
their  powers  and  duties,  which  are  plainly  prescribed  in  the  deed 
of  trust.     This  court  is,  in  my  judgment,  without  any  power  to 
make  the  decree  recommended  by  the  report  of  the  master.     To 
undertake  to  do  it  would  be  to  invade  the  legal  rights  of  the  bond- 
holders, and  if    established,  as  within    the    power  of   a  court  of 
equity,  would  shake  the  credit  of  railroad  securities  throughout 
the  world." 

360.  A  mortgage  trustee  while  in  possession  of  a  railroad 
under  the  mortgage  is  a  trustee  of  the  corporation,  as  well  as 
of  the  bondholders.  It  is  inconsistent  with  the  duties  which  such 
trustee  owes  to  the  corporation  to  deal  in  the  bonds  which  the 
mortgage  was  given  to  secure  for  his  own  private  gain.  This  doc- 
trine of  the  trust  obligations  of  a  mortgage  trustee  while  engaged 
in  the  active  discharge  of  his  trust  is  strongly  brought  out  in  the 
case  of  the  Ashuelot  Railroad  Company  v.  Elliot,  before  the  Su- 
preme Court  of  New  Hampshire.2  While  the  defendant  was  the 
treasurer  and  clerk  of  the  corporation,  a  mortgage  of  its  road  was 
executed  to  him  as  trustee,  to  secure;  the  bonds  of  the  company. 
For  ten  years  afterwards  the  corporation  remained  in  possession  o\ 
the  mortgaged  property,  and  the  defendant  continued  to  ad  as  its 
clerk  and  treasurer.     So  long  as  the  interest  on  the  bonds  was 

i  Dnncaii  v.  Mobile  &  Ohio  B.  K.  Co.  2        2  r»7  N.  H.  897. 
Woods.  542. 

888 


§  3G0.]       THE   DUTIES   AND   RIGHTS   OF   MORTGAGE   TRUSTEES. 

paid  there  was  no  breach  of  condition,  and  nothing  for  hiin  to  do 
in  the  way  of  an  active  performance  of  any  trust  under  the  mort- 
gage.    Thus  far,  of  course,  it  was  a  dry  and  naked  trust.     But 
the  bonds  not  being  paid  at  maturity,  it  thereupon  became,  by  the 
terms  of  the  mortgage,  the  right  and  duty  of  the  trustee  to  enter 
and  hold  possession  of  the  property  for  the  purpose  of  realizing 
upon  the  security  and  enforcing  payment  of  the  debt.     He  did 
this,  and  soon  after  an  act  of  the  legislature  was  obtained,  which 
it  was  supposed  on  all  hands  had  the  effect  to  foreclose  the  mort- 
gage, and  to  invest  the  bondholders  with  the  absolute  ownership 
of  the  road  and  franchise,  with  the  substantial  attributes  of  a  cor- 
poration.    The  conduct  of  the  trustee  in  the  management  of  the 
property  was  based  upon  this  supposition  for  ten  years  and  more, 
until  the  Supreme  Court  of  the  state  held  that  the  statute  was  in- 
effectual to  foreclose  the  mortgage;  but  the  legal  result  of  this 
decision  was  that  the  defendant  during  all  this  time  had  been  in 
possession,  not  as  the  agent  of  the  absolute  owners  of  the  road, 
but  as  the  trustee  of  the  bondholders  under  and  by  virtue  of  the 
mortgage.     During  this  period  he    had   purchased  from    time  to 
time,  at  their  market  price,  bonds  secured  by  this  mortgage  to  the 
amount  of  $46,000;  and  the  value  of  these  bonds  having  finally 
about  doubled,  he  was  required  to  account  to  the  corporation  for 
the  profits  actually  realized  by  such  purchase.     Mr.  Justice  Ladd, 
upon  the  point  of  his  accountability  for  these  profits,  said  :  "  What 
was  his  relation  to  the  corporation  and  the  stockholders  after  he 
took  possession  of  the  road  ?     Undoubtedly  he  was  the  represent- 
ative of  the  beneficial  mortgagees.     In  his  relative  character  of 
trustee,  he  was  mortgagee,  and  in  all  matters  arising  between  him 
in  that  capacity  and  the  corporation,  he  is  to  be  regarded  as  a 
mortgagee  in  possession.     But  it  is  as  trustee  of  the  bondholders, 
and  not  otherwise,  that  he  is  mortgagee  in  possession.     He  does 
not  act  as  an  individual  at  all.     The  question  we   are  to  decide 
does  not  arise  between  the  bondholders  and  the  corporation,  or 
between  Mr.  Elliot,  as  trustee  of  the  bondholders,  and  the  cor- 
poration, but  between  Mr.  Elliot  in  his  individual  capacity  and 
the  corporation  ;  and  I  do  not  see  how  it  is  affected  one  way  or 
the  other  by  the  fact  that  as  trustee  of  the  bondholders  he  was  a 
mortgagee  in  possession.     Grant  that  in  that  capacity  his  interest 
and  duty  were  antagonistic  to  that  of  the  mortgagors,  it  is  only  in 
protecting  and  enforcing  the  rights  of  his  cestuis  que  trust  that  his 
334 


NATURE   OF   THE   TRUST   ASSUMED   BY.  [§  360. 

conduct  is  to  be  governed  by  the  duty  thus  imposed.  Pie  cer- 
tainly cannot  justify  an  individual  act,  otherwise  inadmissible,  on 
account  of  his  relations  with  the  plaintiffs,  on  the  ground  that 
such  act  would  have  been  admissible  had  it  been  done  in  his  rep- 
resentative capacity.  Suppose,  as  is  said,  a  mortgagee  in  posses- 
sion may  buy  in  other  incumbrances  on  the  same  property,  or 
other  demands  secured  by  the  same  mortgage,  for  less  than  their 
face,  and  then  hold  them  against  the  mortgagor  at  par  ;  what  ap- 
plication has  that  to  this  case  ?  What  other  incumbrances  were 
there  to  be  bought  ?  Mr.  Elliot,  as  trustee  of  the  bondholders, 
and  so  mortgagee  in  possession,  represented  all  the  bondholders. 
It  is  plain  that,  as  such  trustee,  he  could  not  buy  in  any  other  in- 
cumbrances for  a  variety  of  reasons,  among  which,  in  addition  to 
the  one  already  given  (that  there  were  no  others),  may  be  men- 
tioned the  fact  that  he  had  no  authority,  express  or  implied,  from 
his  cestuis  que  trust  to  do  so,  and  none  of  their  money  with  which 
to  make  the  purchase.  The  simple  statement  of  the  matter  is, 
that  Elliot,  in  his  representative  capacity  of  trustee  and  mort- 
gagee, bought  no  bonds.  He  bought  them  as  an  individual,  and 
as  an  individual  he  was  not  mortgagee.  So  this  is  not  the  case  of 
a  mortgagee  dealing  in  the  incumbrances  upon  the  estate. 

"  What  duties,  if  any,  towards  the  corporation  and  the  stock- 
holders, did  Elliot's  act  in  taking  possession  of  the  road  impose 
upon  him?  It  was  the  deed  of  the  corporation  that  made  him 
trustee  and  agent  of  the  bondholders,  and  clothed  him  with  the 
character  of  mortgagee.  It  must  be  very  clear  that  he  cannot,  as 
an  individual,  or  as  mortgagee  in  trust,  owe  any  duties  to  the 
mortgagors  inconsistent  with  the  duty  he  owes  under  the  deed  to 
the  bondholders.  Full  elfect  must  be  given  to  the  deed  through 
him,  and  the  legal  rights  of  the  beneficial  mortgagees  are  not  to 
be  impaired  by  any  act  done  by  him,  whether  in  the  interest  of 
the  mortgagors  or  in  his  own  individual  interest.  It  may  be  ad- 
mitted that,  as  trustee  of  the  bondholders,  he  owes  the  mort- 
gagors no  duties  except  those  which  the  law  imposes  upon  mort- 
gagees in  possession  ;  but,  a1  bhe  same  time,  I  think  it  cannot  be 
denied  that  as  an  individual  he  stands  in  a  relation  to  them  of 
great  delicacy  as  well  as  responsibility.  Without  any  personal 
interest  he  is  in  possession  of  their  property  and  franchise,  holding 
under  the  deed,  primarily,  for  the  benefit  of  Hie  bondholders, 
ultimately,  when  the  bonds  are  paid,  for  the  corporation  and  the 


§  3G0.]       THE   DUTIES   AND   EIGHTS   OF   MORTGAGE   TRUSTEES. 

stockholders.  The  corporation  created  the  trust  in  favor  of  the 
bondholders.  He  was  selected  and  appointed  by  them,  and  in 
view  of  the  very  important  duties  that  all  knew  might  eventually 
arise,  he  must  have  been  chosen  on  account  of  his  known  or  sup- 
posed ability  to  do  well  what  by  the  provisions  of  the  deed  might 
in  the  end  be  required  of  him.  Such  a  selection  on  the  face  of 
it  implies  high  personal  confidence  and  trust.  By  accepting  the 
position  and  entering  upon  the  active  performance  of  its  duties, 
he  took  upon  himself,  as  it  seems  to  me,  an  implied  obligation  to 
protect  and  preserve  the  interests  and  rights  of  the  corporation, 
just  as  much  as  he  did  to  enforce  the  rights  of  the  bondholders 
under  the  mortgage  ;  nor  were  his  duties  to  these  parties  really 
at  all  repugnant  or  incompatible.  With  respect  to  the  manage- 
ment of  the  property,  which  was  in  reality  the  main  thing  to  be 
attended  to,  their  interests  were  identical.  The  legal  interest  of 
the  bondholders  was  that  the  bonds  be  paid;  the  interest  of  the 
mortgagors  was  clearly  the  same.  Each  interest  alike  called  for 
a  wise  and  efficient  management  of  the  road.  The  legal  rights 
of  the  mortgagors  were  the  exact  counterpart  and  complement  of 
the  rights  of  the  mortgagees.  His  duty  to  one  commenced  just 
where  his  duty  to  the  other  ended.  There  was  no  clashing,  but 
still  no  open  ground  which  any  other  interest  could  be  permitted 
to  invade.  Nothing  was  called  for  but  a  just  and  disinterested 
administration  of  the  affairs  intrusted  to  him,  with  a  single  eye  to 
the  rights  of  the  two  parties  whose  interests  were  thus  placed 
in  his  care.  Any  act  done  by  him  in  this  situation  of  things, 
whereby  his  own  private  interest  as  an  individual  should  be 
brought  into  antagonism  and  hostility  to  the  interests  of  the  mort- 
gagors, would,  in  my  judgment,  be  just  as  much  a  renunciation  of 
his  implied  obligations  to  them,  just  as  much  a  breach  of  the  duty 
and  trust  he  had  undertaken  on  their  behalf,  as  would  an  act 
bringing  his  individual  interest  into  hostility  to  those  of  the  bond- 
holders be  a  breach  of  his  duty  to  them It  is  true,  as  the 

defendant  says,  that  the  legal  liability  of  the  corporation  upon 
the  bonds  has  all  the  time  been  to  pay  their  full  amount,  with  in- 
terest, to  the  holders.  It  is  at  the  same  time  true,  that  when  the 
bonds  are  selling  in  the  market  or  otherwise  at  fifty  cents  on  a 
dollar,  the  debt  might  be  extinguished  by  the  corporation  for  one 
half  the  amount  they  are  legally  liable  to  pay.  The  actual  value 
of  the  bonds  was  all  the  time  measured  by  the  amount  for  which 
336 


NATURE   OF   THE   TRUST   ASSUMED    BY.  [§  361. 

they  could  be  sold,  and  this  would  depend  upon  the  understood 
ability  of  the  corporation  eventually  to  pay  them  in  full.  Now, 
when  Mr.  Elliot,  after  he  had  taken  possession  of  the  road  under 
the  mortgage,  became  the  owner  of  $46,000  of  the  bonds  secured 
thereby,  his  individual  interest  lay  strongly  in  the  direction  of  en- 
hancing their  salable  value,  and  so  of  increasing  the  amount  for 
which  the  corporation  might  procure  the  extinguishment  of  the 
debt  and  remove  the  mortgage.  The  master  finds  that  his  buy- 
ing up  the  bonds  was  in  part  the  cause  of  advancing  their  price 
from  about  fifty  per  cent,  to  about  par.  His  duty  to  the  bond- 
holders did  not  call  for  any  such  private  speculation  for  such  a 
purpose  ;  and  even  though  it  should  be  said  that  a  legal  wrong 
was  not  thereby  done  the  mortgagors,  inasmuch  as  their  under- 
taking was  to  pay  the  full  face  of  the  bonds,  the  proceeding, 
nevertheless,  strikes  my  mind  as  quite  inconsistent,  in  an  equi- 
table point  of  view,  with  the  relation  of  confidence  and  trust  in 
which  he  stood  to  them." 

361.  The  trustees  represent  the  bondholders  in  suits  affect- 
ing the  mortgage    security.  —  The  rule  of  chancery  pleading, 
which  allows  some   parties  to  sue  or  be  sued  in   behalf  of    all, 
where  their  right  is  the  same  and  their  number  is  so  large  as  to 
render  it  difficult  to  bring  them  all  before  the  court,  is  especially 
applicable  in  all   suits  for  the  foreclosure  of  railroad  mortgages. 
Such  mortgages  are  almost  invariably  made  to  trustees;  and  ordi- 
narily the  trustees  represent   the   bondholders  in   all  matters  of 
litigation  respecting  their  common  and  general  rights.      Whether 
they  are  plaintiffs   seeking  a  foreclosure,  or  as  subsequent  mort- 
gagees are  made  defendants,  they  represent  the   bondholders  for 
whom  the  trusts  are  held,  and  a  decree  is  ordinarily  ;is  binding  on 
such  bondholders  as  if  they  had  been  made  parties.     The  bond- 
holders are  in  such  case  quasi  parties  to  the  suit,  and  have  the 
right  at  any  time  to  intervene  and  become  actual  parties.3     They 
may  come  in  under  the  decree  and  take  the  benefit  of  it,  or,  so 
long  as  the  proceedings  are  not  definitely  closed,  they  may  obtain 
a  hearing,  and  show  the  proceedings  to  be  erroneous.     "  Where 
complainants  are  allowed  to  dispense  with  parties  on  account  "I 
their  numerousness,  any  one  of  whom  would  have  a  right  to  come 
in  by  petition  and  be  made  a  party,  if  necessary,  to  protect  their 

i  Campbell  v.  Railroad  Co.  i  W( 
22 


§  362.]       THE  DUTIES   AND   RIGHTS   OF   MORTGAGE   TRUSTEES. 

interests,  they  ought  to  proceed  with  the  utmost  fairness  and  good 
faith,  and  not  resort  to  anything  like  sharp  practice  in  procuring 
a  final  decree,  which  is  to  be  binding  on  all.  Any  deviation  from 
this  requirement  would  be  a  proper  ground  to  be  considered  on 
the  question  of  opening  or  setting  aside  the  decree  at  the  instance 
of  such  an  omitted  party.  The  court  would  not  tolerate  any 
conduct  of  the  complainants  calculated  to  lull  such  parties  into 
security  and  induce  them  to  remit  any  degree  of  watchfulness  in 
regard  to  their  interest  which  they  would  have  otherwise  exer- 
cised." 1 

The  trustees  of  a  railway  mortgage  have  sufficient  authority 
and  interest  to  enable  them  to  maintain  a  bill  in  equity  to  enjoin 
an  alleged  illegal  proceeding  which  will  seriously  depreciate  the 
value  of  the  bonds  secured,  or  to  maintain  a  bill  to  contest  a 
claim  of  priority  made  in  behalf  of  another  mortgage  under  which 
the  road  and  its  property  are  about  to  be  sold  ;  especially  when 
the  bondholders  are  numerous  and  widely  scattered,  the  trustees, 
as  representing  them  and  holding  the  title  to  the  road  and  prop- 
erty, have  a  right  to  apply  for  judicial  intervention  to  have  the 
question  of  priority  settled  before  any  sale  is  attempted.2 

362.  If  in  any  case  the  trustees,  to  whom  a  corporation 
mortgage  is  made,  fail  or  refuse  to  act,  any  of  the  bondhold- 
ers, for  themselves  and  in  behalf  of  the  rest,  may  step  forward 
and  put  in  motion  the  machinery  of  the  law,  making  the  trustees 
parties  defendant.  Especially  if  in  any  case  the  bondholders  can 
show  that  some  fraud  has  been  practised  or  connived  at  by  the 
trustees,  or  that  they  have  been  made  the  victims  of  fraud,  the 
bondholders  may  apply  to  the  court  for  such  relief  as  a  party  to 
the  suit  would  be  entitled  to  ;  or  they  may  institute  such  other 
auxiliary,  revisory,  or  supplemental  proceedings  as  a  party  to  the 
suit  might  institute  ;  thus,  they  might  bring  a  bill  of  review,  or  a 
bill  for  relief  against  a  fraudulent  decree,  or  conjoin  both  in  one. 

There  can  be  no  doubt  of  the  right  of  bondholders  to  main- 
tain an  action  to  restrain  a  fraudulent  diversion  of  a  portion  of 
property  mortgaged  for  their  security,  when  one  of  the  mortgage 
trustees  is  in  collusion  with  the  company  in  effecting  such  diver- 
sion of  the  property  ;  as  where,  for  instance,  the  company,  after 

i  Per  Mr.  Justice  Bradley,  in  Campbell        2  Murdock  v.  Woodson,  2  Dill.  188. 
v.  Railroad  Co.  supra. 

338 


EFFECT   OF   NOTICE  TO   MORTGAGE  TRUSTEES.  [§  363. 

purchasing  a  large  amount  of  iron  rails  for  the  use  of  the  road, 
which,  as  after-acquired  property,  were  covered  by  the  mortgage, 
authorized  one  of  the  trustees,  who  was  also  the  construction 
agent  of  the  company,  to  pledge,  sell,  or  dispose  of  the  iron,  for 
the  purpose  of  raising  money  to  meet  the  construction  account  of 
the  road.  If  the  bondholders  could  not  do  this,  their  rights  and 
interests  would  be  wholly  without  protection ;  for  the  directors  of 
the  company  authorized  the  disposition  of  the  iron  in  violation  of 
the  plain  terms  of  the  mortgage,  and  under  the  circumstances  of 
the  case,  it  might  well  be  inferred  that  the  other  trustees  acquiesced 
in  the  acts  of  the  trustee  who  was  the  construction  agent,  and  to 
whom  the  active  management  of  the  business  was  intrusted.1 

II.  Effect  of  Notice  to  Mortgage  Trustees. 

363.  Notice  to  trustees  under  an  ordinary  mortgage  deed 
of  a  railroad  company  is  notice  to  the  holders  of  the  bonds 
secured  by  the  mortgage.  Such  trustees  are  considered  in  the 
light  of  agents  for  the  negotiating  of  the  loan.  They  act  for  those 
who  lend  their  money  on  the  security  of  the  mortgage.  They  are 
charged  with  the  duty  of  protecting  the  interests  of  the  bond- 
holders, who  are  unconnected  individuals,  having  no  ready  moans 
of  acting  together  except  through  the  trustees,  whom  the  law 
appoints  to  act  for  them.2  Notice  to  the  trustees  is  held  to  affect 
the  title  in  their  hands  with  reference  to  incumbrances  upon  the 
trust  property.  Actual  notice  to  the  trustees  of  a  prior  equitable 
morto-ac-e  is  notice  of  it  to  the  bondholders,  who  therefore  take 
their  bonds  subject  to  the  legal  consequences  of  the  incumbrance.3 
"The  fact  that  the  bonds  are  treated  as  negotiable,  and  pass  from 
hand  to  hand  like  bank  bills,  does  not  affect  the  question  of  the 
agency  of  the  trustees  in  reference  to  the  security  provided  by  the 
mortgage.  Such  bonds  purport  to  be  secured  by  a  mortgage  in 
trust  to  trustees  who  are  designated  and  known.  They  are  nego- 
tiated and  purchased  upon  the  security  thus  existing.  Thai  secu- 
rity consists  in  the  property  and  title  which  exist  in  the  tru  itees. 
By  the  purchase  of  the  bonds,  the  purchaser  voluntarily  adopts 
the  security  as  it  exists  in  the  trustees,  ami  becomes  cestui  que 

i  Weetjen  v.  St.  Paul  &  Pacific  B.  B.  :|  Miller  v.  Rutland  <S  Washington  EL 
Co.  4  Hun  (N.  V.),  529,  S  B.  Co.  30  Vt.  452. 

-  Pierce  v.   I -y,  32  N.  II.  484,  5'Jl, 

per  Chief  Justice  Perley. 

889 


§  363.]       THE   DUTIES   AND   RIGHTS    OF   MORTGAGE   TRUSTEES. 

trust  under  them,  thereby  adopting  said  trustees  as  his  agents  for 
holding  the  existing  title,  and.  administering  the  property  held 
thereby  to  the  intents  specified  in  the  creation  of  the  trust.  The 
question  is  not  as  to  how  cestuis  que  trust  would  be  affected,  by 
notice  to  trustees  of  transactions  subsequent  to  the  creation  of  the 
trust,  or  to  their  becoming  cestuis  under  the  trust,  but  as  to  how 
they  are  affected  by  notice  to  the  trustees  which,  as  to  them  per- 
sonally, affects  the  legal  estate  at  the  time,  and  in  the  act  of  their 
becoming  trustees. 

"  The  notice,  which  the  law  regards  as  effectual  to  charge  a 
subsequent  purchaser,  is  such  as,  if  duly  heeded  and  properly  pur- 
sued, would  lead  to  a  knowledge  of  the  true  character,  in  point  of 
fact,  of  the  prior  incumbrance,  and  thus  charges  him  with  the  legal 
consequences  of  such  prior  incumbrance,  however  he  may  judge 
of  the  validity,  in  point  of  law,  of  such  incumbrance,  or  of  the 
legal  consequences  that  may  flow  from  it.  By  the  fact  of  such 
notice,  being  charged  with  a  knowledge  of  such  incumbrance,  if 
in  fact  it  existed,  the  law  regards  the  taking  of  a  subsequent  con- 
veyance, in  prejudice  to  such  incumbrance,  as  being  in  bad  faith 
on  the  part  of  the  purchaser,  even  though  in  truth  he  took  such 
conveyance,  either  in  heedless  disregard  of  the  notice,  or  upon  the 
supposition  that  the  prior  claim  was  invalid,  or  in  doubt  whether 
it  was  valid  or  not,  and  thought  best  to  take  his  chances  in  that 
respect;  and  not  with  any  wish  or  design  to  defraud  anybody.  In- 
deed, the  true  idea  of  fraud,  as  involved  in  this  subject,  is  not  so 
much  that  there  is  fraudulent  intent  on  the  part  of  the  subsequent 
purchaser  in  taking  the  conveyance,  as  that,  to  permit  it  to  be 
set  up  and  enforced,  as  against  the  prior  equitable  title,  would 
operate  a  fraud  as  against  that  title.  This  is  the  elemental  idea 
of  an  estoppel  in  pais,  in  its  ordinary  application  ;  to  which  the 
principle  upon  which  a  subsequent  purchaser  is  charged  by  a 
notice  of  a  prior  equitable  title  is  strikingly  analogous,  if  not 
precisely  identical  with  it."  1 

"  Then  as  to  the  practicableness  of  a  contrary  doctrine.  The 
very  fact  that  the  bonds  pass  from  hand  to  hand,  and  without  any 
record  or  notice,  and  are  changing  hands  every  day  to  a  greater  or 
less  extent,  shows  that  the  matter  of  fixing  an  equity  by  notice 
would  be  practically  impossible.  It  cannot  be  known  in  whose 
hands  all,  or  any  considerable  portion,  of  the  bonds  are  at  any 
1  Per  Barrett,  J.,  in  Miller  v.  Rutland  &  Washington  R.  R.  Co.  supra. 

340 


EFFECT    OF   NOTICE   TO   MORTGAGE   TRUSTEES.  [§  364. 

given  time,  nor  in  whose  bands  they  will  be  the  next  clay,  or  next 
month.  Of  course  notice  would  affect  only  the  party  to  whom  it 
was  given,  as  there  is  no  joint  interest,  or  representative  relation, 
between  the  different  holders  of  the  bonds.  Nor  would  notice  to 
a  holder  of  specific  bonds  to-day  affect  a  person  who  without  no- 
tice should,  in  good  faith,  be  the  holder  of  the  same  bonds  to-mor- 
row. The  result  must  necessarily  be,  that  however  well  grounded 
an  equity  a  party  might  have  against  the  corporation,  and  against 
the  trustees  personally,  attaching  upon  the  legal  title  held  by  such 
trustees,  it  would  prove  barren  and  futile  to  any  beneficial  intent, 
by  reason  of  the  impossibility  of  knowing  and  notifying  the  ever- 
shifting  parties  who  have  an  interest,  and  claim  an  equity,  sub- 
sequently created  and  subsequently  accruing.  On  the  other  hand, 
it  would  be  easy,  comparatively,  for  persons  desirous  of  investing 
in  railroad  mortgage  bonds  to  apply  to  the  trustees  holding  the 
security,  and  elicit  the  true  state  of  the  title.  We  think  it  no 
hardship  that  they  should  be  required  to  do  so,  if  they  would 
avoid  the  hazard  of  finding  their  security  subject  to  prior  incum- 
brances, when  it  might  be  too  late  to  save  themselves  from  the 
consequences  of  such  a  state  of  the  title." 

364.  Notice,  however,  to  trustees  who  take  a  conveyance 
for  the  mere  purpose  of  upholding  an  estate,  without  having 
any  previous  connection  with  the  title,  is  not  always  regarded  as 
notice  to  the  cestuis  que  trust.1  Yet  in  a  case  where  ili<'  only 
trust  expressed  in  a  mortgage  by  a  railroad  company  to  trustees 
was  to  hold  the  property  to  secure  the  payment  of*  the  bonds 
nam  I'd,  it  was  In 'Id  that  an  active,  administrative  trust  was  created, 
under  which,  even  alter  a  foreclosure,  the  trustees  were  author- 
ized to  make  a  lease  of  the  road  and  property  lor  n  term  of  ten 
.  against  the  protesl  and  remonstrance  of  a  large  majority  in 
amount  of  the  bondholders;  and  the  objecting  bondholders  hav- 
ing obtained  an  Injunction  against  the  use  of  the  road  by  the 
lessees,  they  were  compelled  to  pay  heavy  damages  for  the  injury 
done  to  both  the  Lessors  and  the  lessees  by  the  injunction.2 

Notice  to  one  mortgage   trustee  of    irregularities  in  a  county 

ription  dors  not  operate  to  destroy  the  bond  fide  holding  of 

bondholders  under  a  deed  of  trust  which  includes,  with  the  tnort- 

1  Pierce  v.  Emery,  ••;_'  \.  H.  484,  521,        -  Bturgea  ».  Knapp,  31  \'i.  L,  54;  S.  C. 
per  Chiel  Ju  tice  Pei  ley.  86  Vi.  139. 

841 


§  365.]       THE   DUTIES  AND   EIGHTS   OF   MORTGAGE   TRUSTEES. 

o-ao-ed  property,  county  bonds  issued  under  such  subscription,  but 
the  trustees  may  enforce  in  behalf  of  the  bondholders  the  pay- 
ment of  bonds  given  in  payment  of  such  subscriptions,  and  the 
bondholders  are  just  as  much  entitled  to  the  character  of  bond 
fide  holders  without  notice  as  if  no  notice  had  ever  come  to  any 
of  the  trustees.1  They  are  not  to  be  regarded  as  the  agents  of 
the  purchasers  of  the  bonds  but  merely  assignees,  coupled  with  no 
interest,  of  the  legal  title  of  the  property  in  trust  for  whoever 
may  become  purchasers  of  the  bonds.2 

III.  Rights  of  Mortgage   Trustees  in  Possession. 

365.  Mortgage  trustees  on  taking  possession  can  use  the 
franchise  so  far  as  necessary.  —  Authority  to  a  railroad  company 
to  issue  bonds  and  "  secure  the  payment  of  the  same  by  mortgage, 
or  deed  of  trust,  on  the  whole  or  any  part  of  the  road,  property, 
and  income  of  the  company,  then  existing  or  thereafter  to  be  ac- 
quired," implies  the  authority  to  clothe  the  grantees  with  all 
needful  powers  to  use  the  thing  conveyed,  in  a  proper  and  bene- 
ficial manner.  Under  such  a  deed,  transferring  the  whole  prop- 
erty to  trustees  and  empowering  them  upon  default  to  take  pos- 
session of  the  road  and  to  hold  and  manage  it  for  the  uses  of  the 
trust,  the  inquiry  arose  whether  the  trustees  upon  taking  posses- 
sion could  exercise  the  franchises  of  the  company  in  this  manner. 
It  was  held  that  the  trustees  were  not  limited  to  using  and  oper- 
ating the  road  as  the  agents  of  the  company  to  which  the  franchise 
was  granted,  but  might  use  and  operate  it  in  their  own  name  and 
right,  and  enjoy  the  franchises  granted  to  the  corporation  so  far 
as  necessary  for  the  enjoyment  of  the  property  mortgaged  to 
them.3  As  to  the  intention  of  the  legislature  in  authorizing  the 
construction  of  the  road,  and  afterwards  the  borrowing  of  money 
by  mortgage  to  enable  it  to  construct  and  equip  the  road,  Chief 
Justice  Caton  said :  "  If  it  was  the  intention  that  the  road  should 
not  be  taken  up  and  destroyed  for  the  payment  of  the  mortgage 
debt,  but  that  it  should  be  sold  subject  to  the  duty  towards  the 
public  of  continuing  and  operating  it  as  a  road,  it  follows  neces- 
sarily, that  it  was  the  intention  of  the  legislature  that  those  into 
whose  hands  the  road  might  fall,  and  upon  whom  this  duty  to 

i  Commissioners  of  Johnson  County  v.         2  Curtis  v.   Lcavitt,   15  N.  Y.  9,  194, 
Thayer,  94  U.  S.  631.  195. 

3  Palmer  v.  Forbes,  23  111.  301,  302. 

342 


RIGHTS   OF   MORTGAGE  TRUSTEES  IN   POSSESSION.        [§  366. 

the  public  of  running  and  operating  the  road  would  devolve, 
should  possess  all  the  necessary  rights  and  powers  to  enable  them 

to  perform  this  duty Perhaps  it  is  not  too  much  to  say, 

that  the  extent  of  right  conferred  upon  the  company  for  the  pur- 
pose of  enabling  it  to  finish,  repair,  and  operate  the  road,  was  de- 
signed to  be  impliedly  conferred  upon  the  mortgagees  in  possession 
or  purchasers  under  the  mortgage,  to  enable  them  to  accomplish 
the  same  object;  but  it  is  not  necessary  now  to  say  this,  but  we 
do  say  unhesitatingly,  that  the  trustees  or  purchasers  are  endowed 
with  sufficient  powers,  which  are  undoubtedly  in  the  nature  of  a 
franchise,  to  enable  them  to  discharge  the  duty  which  the  public 
have  a  right  to  demand  of  them,  by  keeping  in  repair,  maintain- 
ing, and  operating  the  road,  and  to  demand  and  receive  a  suitable 
reward  therefor,  and  for  this  purpose  they  may  use  their  own 
proper  names,  or  adopt  any  other  convenient  business  name,  as 
any  other  individual  or  company  may  do,  and  they  are  under  no 
necessity  of  adopting  the  name  of  the  company  to  whose  rights 
in  the  property  they  have  succeeded." 

When  mortgage  trustees  have  taken  possession  of  a  railroad 
upon  default  under  authority  given  by  the  mortgagee,  they  are  en- 
titled to  retain  possession  until  the  whole  debt  is  paid,  unless  the 
mortgage  provides  that  they  shall  surrender  possession  upon  re- 
ceiving payment  of  the  instalment  then  due.1 

366.  In  like  manner  when  mortgage  trustees  obtain  an 
absolute  foreclosure  by  writ  of  entry  and  possession  for  three 
years,  they  hold  this  absolute  title  in  trust  for  the  bondholders 
and  for  no  other  parties,  and  unless  the  bondholders  organize  a 
new  company,  the  trustees  execute  their  trust  by  disposing  of  the 
property  and  distributing  the  proceeds  among  the  bondholders, 
pro  rata.  After  the  title  lias  become  absolute  in  this  manner,  the 
mortgagors  and  their  privies  in  estate  cannot  be  heard  to  object 
that  the  mortgage  was  not  properly  sealed,  or  that,  on  a  true  ^in- 
struction of  its  terms,  an  absolute  judgment  of  foreclosure  should 
not  have  been  entered.  The  title  of  the  trustees  rests  upon  the 
judgment  of  foreclosure,  and  they  may  have  a,  decree  declaring 
their  rights  as  against  all  parties  claiming  under  the  mortgagors 
by  titles  acquired  subsequently  to  the  mortgage.3 

i  Wood  v.  Goodwin,  49  Mi  Depol  Co.  12  Allen   (Magi.),  837.    And 

2  Haven    p.  Grand  Junction   B.  K.  &    sec  Kennebec  &  Portland   B.   B.  Co.  n. 

343 


§  367.]       THE   DUTIES    AND   RIGHTS    OF    MORTGAGE   TRUSTEES. 

367.  The  trustees  may  lease  a  road  the  title  to  which  they 
have    gained   by  strict   foreclosure.  —  The   Western  Vermont 
Railroad  Company  executed  a  mortgage  of  its  road  and  franchise 
to  trustees,  which  contained  no  provisions  in  regard  to  the  rights 
and  duties  of  the  trustees,  either  before  or  after  foreclosure.     In 
consequence  of  a  default,  the  mortgage  was  foreclosed  by  a  decree 
of  strict  foreclosure  in  the  ordinary  form,  simply  declaring  that,  if 
certain  specified  sums  were  not  paid  on  or  before  certain  specified 
times,  the  mortgagors  should  be  foreclosed  from  all  equity  of  re- 
demption in  the  mortgaged   property.     Payment  not  being  made 
in  accordance  with  the  decree,  the  title  became  absolute  in  the 
trustees.     The  bondholders  were  numerous,  and  widely  scattered, 
and  had  no  legal  organization.     No  statute  then  existed  in  the 
state  under  which  such  bondholders,  or  the  purchasers  at  a  fore- 
closure sale,  were  authorized  to  organize  themselves  into  a  new 
corporation.     The  trustees  had  no  rolling  stock  for  the  road,  and 
no  means  of  purchasing  any.     For  a  short  time  the  trustees  oper- 
ated the  road  through  an  agent,  but  at  a  material  loss.     Shortly 
after  acquiring  full  title  to  the  property  the  trustees  leased   the 
road  to  the   Troy  and  Boston  Railroad  Company,  a  corporation 
created  by  the  State  of  New  York,  owning  a  connecting  road,  for 
a  period  of  ten  years,  for  a  satisfactory  rent.     The  lease  provided 
that  if  a  majority  in  amount  of  the  bondholders  should,  within 
ninety  days  from  the  date  of  the  lease,  unite  in  giving  notice  in 
writing  to  the  lessees  of  their  desire  to  terminate  the  lease  at  the 
expiration  of  one  year,  the  lease  should  so  terminate.    The  lessees 
went  into  immediate  possession,  and  within  ninety  days  from  the 
date  of  the  lease  a  committee,  representing  the  holders  of  a  ma- 
jority of  the  bonds,  instead  of  giving  the  notice  provided  for,  gave 
notice  that  they  denied  the  power  of  the  trustees  to  make  the 
lease,  and  that  they  regarded  the  lessees  as  trespassers  in  the  use 
of  the  road.     The  lessees  still  retaining  possession,  certain  bond- 
holders, in  behalf  of  themselves  and  all  other  bondholders,  who 
should  come  in  to  prosecute  the  suit,  brought  a  bill  praying  for  a 
decree,  that  after  the  foreclosure   the  trustees  had   no  right  to 
make  any  disposition  of  the  road  except  to  convey  it  to  the  bond- 
holders, and  that  the  lease  was  null  and  void.     But  the  court  dis- 
missed the  bill,  holding  the  lease  to  be  valid.1      Chief  Justice 

Portland  &  Kennebec  R.  R.  Co.  59  Me.  9,         *  Sturges  v.  Knapp,  31  Vt.  1 ;  and  see 
47.  S.  C.  33  Vt.    486;  36  Vt.  439. 

344 


RIGHTS   OF   MORTGAGE   TRUSTEES   IN  POSSESSION.        [§  367. 

Redfield  delivered  the  opinion  of  the  court  and  fully  examined  the 
nature  of  the  estate  in  the  trustees  created  by  the  mortgage,  the 
forfeiture,  and  the  foreclosure.  This  was  regarded  as  depending 
almost  exclusively  upon  the  implications  growing  out  of  the  state 
of  the  property,  the  purposes  desired  to  be  accomplished,  and  the 
mode  provided  for  that  end.  The  chief  inquiry  was,  whether 
the  functions  imposed  by  the  trust  ceased  upon  the  foreclosure, 
and  there  remained  nothing  further  to  be  done  except  to  convey 
the  estate  to  the  bondholders.  "  When  we  look  at  the  position  of 
affairs  at  this  time,"  said  the  learned  judge,  "  it  seems  difficult 
to  come  to  any  such  conclusion.  The  powers  and  duties  of  the 
corporation,  in  regard  to  the  road  and  its  franchises,  under  such  a 
mortgage  and  foreclosure,  must  be  regarded  as  effectually  termi- 
nated for  all  practical  purposes.  The  trustees  and  the  cestuis  que 
trust,  one  or  both,  had  effectually  become  the  corporation,  or  had 
acquired  all  its  essential  rights,  and  assumed  all  its  duties,  so  far 
as  the  public  was  concerned.  And  these  were  important  and 
pressing.  Delay  for  the  shortest  interval  might  be  attended  with 
disastrous  consequences  to  the  continuance  of  the  franchise  even, 
and  must  be  so,  in  every  view,  to  the  interests  of  the  cestuis  que 
trust.  The  road  could  not,  in  strict  propriety,  be  allowed  to  stop 
for  a  single  day  ;  and  it  could  not  be  allowed  to  cease  operation 
for  any  considerable  time,  with  any  safety  to  the  interests  of  those 
to  be  affected  by  the  depreciation  of  the  property,  and  the  inter- 
vention of  counter-interests  and  influences.  The  cestuis  que  trust, 
the  holders  of  these  bonds,  were  a  changing,  unorganized  body, 
having  no  common  bond  of  union,  and  no  recognized  principle  of 
action,  unless  by  unanimity  of  consent,  which  is  practically  im- 
possible. It  would  not  be  expected  under  such  circumstances 
that  there  should  be  an  immediate  surrender  of  the  property  to 
this  heterogeneous  and  chaotic  mass  of  men,  women  (single  and 
married),  and  infants,  many  of  whom  wore  under  such  disabilities 
that  they  could  not  act  for  themselves,  and  where  consequent  de- 
lay must  ensue  in  providing  the  means  of  obtaining  their  consent 
Legal  form,  which  must  be  fatal  to  the  enterprise.  All  this 
musj  be  regarded  as  in  the  contemplation  of  the  parties  at  the 
time  of  entering  into  the  contract,  by  which  the  bonds  were  is- 
Bued.     It  inn  rded  in  looking  for  the  true  construction 

of  the  contract,  for  in  that  we  are  attempting  to  obtain  the  1 

and  will  of  the  parties  at  the  time  of  making  the  contract  in  re- 

845 


§  868.]       THE   DUTIES   AND   EIGHTS   OF   MORTGAGE   TRUSTEES. 

gard  to  the  state  of  facts  which  has  now  intervened  ;  and  it  will, 
perhaps,  fairly  tost  this,  to  ask  ourselves,  what  would  have  been 
their  probable  response,  had  the  inquiry  been  put  to  the  parties  : 
What  shall  be  done  with  this  property,  and  how  shall  it  be  man- 
aged, in  case  of  foreclosure?  Shall  the  trustees  continue  to  man- 
age it  for  the  time  being,  and  until  the  order  of  the  Court  of 
Chancery,  as  in  the  case  of  other  trusts  ?  It  seems  to  us  there 
can  be  but  one  response  to  this  question.  The  trustees  seem  to 
have  been  selected  for  this  very  office,  among  others,  of  control- 
ling and  managing  the  property  in  case  of  forfeiture  and  sur- 
render, as  trustees,  for  the  benefit  of  the  cestuis  que  trust,  in  order 
to  make  it  available  for  the  payment  of  the  bonds,  both  interest 
and  principal.  This  must  be  so  until  some  organization  of  the 
bondholders,  and  the  acquiring  of  some  capacity  to  act,  by  a  ma- 
jority, or  in  some  such  way,  as  to  enable  them  to  discharge  this 
new  class  of  duties  thrown  upon  them  by  the  forfeiture  of  the 
condition  of  the  mortgage,  and  the  surrender  of  the  road  with  its 
incidents  and  fixtures." 

A  strict  foreclosure  is  now  very  rarely  had  ;  but  it  is  conceived 
that  the  duties  of  trustees  who  purchase  mortgaged  property  at  a 
foreclosure  sale  for  the  benefit  of  the  bondholders  would  be  pre- 
cisely the  same  as  those  of  trustees  who  acquire  the  title  by  a 
decree  of  strict  foreclosure.  Provision,  however,  is  now  quite 
generally  made  by  statute  for  the  organization  of  purchasers  at 
such  a  sale  into  a  corporation,  so  that  the  management  by  trus- 
tees after  foreclosure  need  be  only  temporary,  and  until  such 
organization  is  completed. 

338.  No  right  of  set-off  can  accrue  against  the  trustees 
under  a  mortgage  after  they  have  entered  into  possession  of 
the  mortgaged  road.  Thus  the  Wallkill  Valley  Railway  Com- 
pany having  made  default,  the  trustees  entered  into  possession 
and  received  the  rents  and  tolls  for  the  benefit  of  the  bondholders. 
They  subsequently  brought  suit  against  an  agent  of  the  road  for 
mone}''  collected  by  him  from  the  post-office  department  of  the 
United  States  for  carrying  the  mails  upon  the  road  after  the  trus- 
tees had  taken  possession,  and  the  agent  claimed  to  be  entitled  to 
set  off  a  note  given  by  the  company  to  him  while  in  their  service, 
before  the  default,  and  which  had  not  matured  at  that  time.  The 
right  of  the  trustees  to  the  earnings  of  the  road  was  declared  to 
846 


RIGHTS   OF   MORTGAGE   TRUSTEES   IN    POSSESSION.       [§§  369,  370. 

be  absolute  from  the  time  they  took  possession,  and  therefore  the 
agent  could  not  make  any  offset  of  such  note.1 

369.  Trustees  for  bondholders  retain  their  trust  so  long  as 
it  has  not  been  fulfilled,  and  any  part  of  the  subject  matter  of 
the  trust  remains  to  be  disposed  of,  unless  they  have  been  dis- 
charged or  in  some  way  incapacitated  from  executing  their  trust. 
The  trustees  of  the  Western  Vermont  Railroad,  having  by  a  strict 
foreclosure  gained  an  absolute  title  in  trust  for  the  bondholders, 
leased  the  road  for  a  term  of  years,  and  at  the  expiration  of  the 
lease  brought  suit  upon  the  covenants  of  the  lease.  It  was  ob- 
jected, however,  that  before  the  expiration  of  the  lease  a  new  cor- 
poration was  organized  by  a  majority  of  the  bondholders  of  the 
defunct  corporation,  under  the  laws  of  Vermont,  who  had  con- 
verted their  bonds  into  stocks,  and  that  the  new  corporation  was, 
by  the  provision  of  the  statute  under  which  it  was  formed,  substi- 
tuted as  trustee  for  the  other  bondholders  in  place  of  the  plain- 
tiff in  error,  and  had  thus  become  the  real  party  in  this  suit.2 
"  Manifestly,"  said  Mr.  Justice  Davis,  of  the  Supreme  Court  of 
the  United  States,  "  it  is  not  in  the  power  of  a  state  legislature, 
without  the  consent  of  the  cestuis  que  trust,  to  substitute  a  new 
trustee  in  place  of  the  persons  named  in  the  mortgage.  This 
would  impair  the  obligation  of  the  contract.  The  salability  of 
railroad  bonds  depends  in  no  inconsiderable  degree  upon  the  char- 
acter of  the  persons  who  are  selected  to  manage  the  trust.  If 
these  persons  are  of  well-known  integrity  and  pecuniary  ability, 
the  bonds  are  more  readily  sold  than  if  this  were  not  the  case. 
It  is  natural  that  it  should  be  so,  and  on  this  account  the  trustees 
usually  appointed  in  this  class  of  mortgages  are  persons  of  good 
reputation  in  the  cities  where  these  bonds  are  likely  to  sell.  To 
change  them  is  to  change  the  contract  in  an  important  particular, 
and  this  cannot,  be  done  without  the  consent  of  the  parties  for 
whoso  benefit  the  trust  was  created." 

370.  Mortgage  trustees  in  possession  are  liable  as  common 
carriers  to  the  same  extent  that  the  corporation  itself  would  be 
liable.  Unlike  receivera  in  possession  they  are  liable  for  the  neg- 
ligence of  t  ho  le  employed  in  operating  the  road,  \\  hereby  damages 
occur  to  property  or  injuries  happen  to  persons.    They  are  merely 

»  Murrav  v.  Deyo,  io  Hun  (N.  Y.),  8.  2  Enapp  v.  Railroad  Co.  20  Wall.  117. 

847 


§  371.]       THE   DUTIES   AND   RIGHTS    OF   MORTGAGE   TRUSTEES. 

the  agents  of  the  bondholders,  and  can  claim  no  immunity  by 
reason  of  holding  an  official  position. 

Trustees  in  possession  under  a  mortgage  of  a  railroad,  its  prop- 
erty and  franchises,  for  a  breach  of  condition  are  liable  in  dam- 
ages, under  a  statute  making  railroad  corporations  responsible  for 
injuries  to  land  upon  the  line  of  the  railroad  from  fire  caused  by  a 
locomotive  engine.  When  such  a  mortgage  is  duly  made  with 
legislative  authority,  the  trustees  to  whom  it  is  executed  stand  in 
the  place  of  the  corporation  vested  with  all  the  rights,  and  subject 
to  all  the  liabilities  incidental  to  the  exercise  of  the  franchise  and 
the  operation  of  the  railroad.1 

The  mortgage  trustees  of  a  railroad  company  in  possession  and 
operating  the  road  in  the  name  of  the  company  are  liable  to  be 
sued  for  matters  occurring  under  their  management  in  that  name. 
When  such  trustees  have  defended  a  suit  brought  in  the  corporate 
name  of  the  company,  and  have  given  no  public  notice  of  any 
change  in  the  name  by  which  they  carried  on  the  business,  it  is 
too  late  for  them  to  say  that  they  had  another  name.2  The  trus- 
tees have  an  undoubted  power  in  the  nature  of  a  franchise  to  dis- 
charge their  public  duty  by  keeping  the  road  in  repair  and  oper- 
ating it,  and  for  this  purpose  they  may  use  their  own  names  or 
adopt  any  other  convenient  business  name  ;  and  they  are  under 
no  necessity  of  adopting  the  name  of  the  company  ;  and  if  they  do, 
they  cannot  object  to  a  suit  against  them  by  the  name  they  use.3 

IV.  Removal  of  Trustees  and  Filling  of  Vacancies. 

371.  A  court  of  equity  may  remove  a  non-resident  trustee 
of  a  railroad  mortgage  and  appoint  another  in  his  stead,  by  an  ex 
parte  proceeding,  when  service  upon  the  absent  trustee  is  impos- 
sible, and  the  action  of  the  court  is  invoked  for  the  purpose  of 
preserving  the  mortgaged  property  ;  and  the  fact  that  the  absent 
trustee  is  within  the  territory  of  a  country  at  war  with  the  country 
in  which  the  court  is  sitting  not  only  does  not  prevent  the  exer- 
cise of  this  power,  but  furnishes  a  good  reason  for  its  exercise.4 
The  Mobile  and  Ohio  Railroad  Company,  incorporated  under  the 
laws  of  the  State  of  Alabama,  in  1853,  executed  a  mortgage  to 
three  trustees,  two  of  whom  resided  in  New  York  and  the  other 

1  Daniels  v.  Hart,  118  Mass.  543.  4  Ketchum  v.  Mobile  &  Ohio  R.  R.  Co. 

2  Wilkinson  v.  Fleming.  30  111.  353.  2  Woods,  532. 

3  Palmer  v.  Forbes,  23  111.  301,  318. 

348 


REMOVAL    OF   TRUSTEES   AND    FILLING   OF    VACANCIES.       [§  371. 

in  Alabama,  of  its  railroad  and  franchises  in  trust  to  secure  bonds 
to  the  amount  of   66,000,000.     The  mortgage  also  covered  a  land 
grant  of  one  million  oi^e  hundred  and   fifty-six  thousand  six  hun- 
dred and  fifty-eight  acres  of  land.     The  deed  provided  that  the 
trustees  should  have  control  of  these  lands,  should  invest  the  pro- 
ceeds of  all  sales  of  them  as  a  sinking  fund  for  the  payment  of  the 
bonds,  and  should  render  an  account  of  their  doings  on  or  before 
the  first  clay  of  January  in  each  year.    The  deed  also  provided  that 
if  either  of  the  trustees  should  die,  or  become  incapacitated  from 
any  cause,  or  resign  his  office,  then  the  said  company,  or  the  other 
trustees  or  trustee,  might  select  some  other  person  to  fill  the  va- 
cancy.   In  1862,  two  of  the  trustees  having  died,  the  company  filed 
a  bill  in  the  Court  of  Chancery  for  the  County  of  Mobile,  in  Ala- 
bama, against  the  other  trustee,  Morris  Ketchum,  who  was  a  citizen 
of  New  York,  and  was  not  a  bondholder,  stockholder,  or  officer  of 
the  railroad  company,  charging  that  lie  had  neglected  his  duty  as 
trustee,  and  refused  to  unite  with  the  company  in  the  appointment 
of  new  trustees;  that  the  trust  property  was  entirely  within  the 
Confederate   States,  and  that  he  was   an  alien  enemy;  that  the 
trust  property  was  suffering  for  want  of  a  trustee  capable  of  act- 
ing, and  that  the  interests  of  the  holders  of  bonds,  secured  by  the 
trust  deed,  imperatively  demanded  the  appointment  of  trustees 
residing  within  the  territory  of  the  Confederate  States,  who  could 
perform  the   duties   incident  to  the   trust.       The  bill  prayed  that 
this  trustee  might  be  removed,  and  that  the  court  would  lill  the 
three  vacancies  by  appointing  new  trustees.     Notice  of  the  pro- 
dings  was  given   by  publication  according  to  the  Code  of  tin; 
state,  and  a  decree  was  made  as  prayed  for.     The  new  trustees 
entered  upon  their  duties  and  into  the  possession  and  management 
the  lands,  and  continued  the  trust  without  challenge  or  question 
until  the  nineteenth  day  of  April,  1875,  when  two  of  the  trustees 
resigned,  and  the  remaining  trustee  and  the  railroad  company,  in 
with  the  provisions  of  the  deed  of  trust,  appointed  two 
other  trustees,  who  entered  upon  the  duties  of  the  office.     In  Maj , 
look  full  possession  of  all   the  property  of  the 
railroad  company  for  a  breach  of  the  condition  of  the  mortga 
and  filed  a  bill  in  equity  to   be  confirmed  in    their  possession  and 
for  foreclosure.     On  the  fourteenth  day  of  March,  L876,  Morris 
Ketchum,  who  had  in  L865  Learned  of  In    removal,  but  had  hith- 
erto made  no  claim  to  the  oilier,  filed  a  bill  in  which  he  all< 

349 


§  371.]       THE   DUTIES   AND   RIGHTS    OF   MORTGAGE   TRUSTEES. 

that  lie  was  the  sole  surviving  trustee,  and  prayed  that  the  prop- 
erty might  be  sold  for  the  benefit  of  the  bondholders,  and  that  a 
receiver  be  appointed  to  take  charge  of  the  property  in  the  mean 
time.  Mr.  Woods,  the  circuit  judge,  delivered  the  decision  of  the 
court,1  in  which  he  said :  "  I  think  this  case  is  clearly  distinguish- 
able from  those  cited  by  complainant.  Ketchum  was  a  naked  trus- 
tee. He  had  no  personal  interest  in  the  property  conveyed  to 
him  by  the  trust  deed.  It  was  a  property  which,  according  to  the 
record,  cost  $20,000,000,  and  the  cestuis  que  trust  of  this  immense 
estate  were  scattered  all  over  the  United  States  and  Europe. 
Ketchum's  co-trustees  were  both  dead,  and  the  war  which  existed 
between  the  United  States  and  the  Confederate  States  rendered 
Ketchum  as  impotent  to  discharge  the  duties  of  the  trust  as  if 
he  also  had  been  dead.  The  interest  of  the  cestuis  que  trust  im- 
peratively demanded  the  services  of  a  trustee.  In  this  condition 
of  things  the  settler  of  the  trust,  namely,  the  railroad  company, 
applied  to  a  court  of  competent  jurisdiction,  alleging  neglect  of 
duty  on  the  part  of  the  surviving  trustee,  and  stating  such  facts 
regarding  the  trustee  as  showed  that  it  was  impossible  for  them  to 
discharge  the  duties  of  his  trust  by  reason  of  the  war  then  raging. 
The  filing  and  averments  of  this  bill,  and  the  subsequent  proceed- 
ings and  decree,  were  in  strict  conformity  with  the  statute  law  of 
Alabama,  which  had  been  enacted  and  was  in  force  when  the 
trust  deed  was  executed."  The  learned  judge  further  said  that 
the  proceedings  of  the  court  were  not  at  any  rate  absolutely  void 
by  reason  that  service  was  not  made  upon  the  absent  trustee, 
whom  it  was  impossible  to  reach  by  notice ;  that  the  court  might 
doubtless  have  acted  in  an  ex  parte  proceeding  for  his  removal  and 
the  appointment  of  a  new  trustee;  that  the  action  of  the  court  was 
at  least  effectual  for  the  valid  appointment  of  trustees  to  act  dur- 
ing the  disability  of  the  surviving  trustee,  even  without  notice  to 
him,  and  that  the  long  inaction  of  the  complainant  after  he  learned 
of  the  decree  removing  him  from  his  trust,  without  any  attempt  to 
assert  his  rights  to  the  property,  was  an  abandonment  of  any  title 
he  may  have  had  to  the  office  of  trustee,  and  an  acquiescence  in 
the  order  of  things  established  by  the  Mobile  Chancery  Court. 

A  decision  inconsistent  with  the  foregoing  was  rendered  in  Vir- 
ginia, but  it  can  hardly  be  regarded  as  authority.     A  deed  of  trust 
of  the  Alexandria  and  Washington  Railroad  Company  provided 
1  Ketchum  v.  Mobile  &  Ohio  R.  R.  Co.  suj»a. 

350 


REMOVAL   OF   TRUSTEES  AND   FILLING   OF   VACANCIES.      [§  372. 

that  in  case  of  the  death,  incapacity,  or  resignation  of  the  trustee, 
the  vacancy  might  be  filled  by  an  appointment  to  be  made  by  any 
court  of  record  in  the  county  of  Alexandria  on  the  application  of 
the  holders  of  three  fifths  of  the  bonds  secured,  and  notice  to  the 
president  or  one  of  the  directors  of  the  company.  During  the 
War  of  the  Rebellion  the  trustee,  president,  and  directors  of  the 
company  went  within  the  lines  of  the  Confederate  forces  and  re- 
mained there  during  the  war.  In  the  mean  time  an  application 
was  made  to  a  court  of  said  county  to  appoint  a  new  trustee  ;  and 
a  trustee  was  accordingly  appointed  without  giving  notice,  but 
upon  affidavit  that  no  officer  or  agent  of  the  company  could  be 
found  upon  whom  notice  could  be  served.  The  new  trustee  pro- 
ceeded to  sell  the  property  under  the  trust  deed.  The  Military 
Court  of  Appeals  of  Virginia  held  the  appointment  void  for  want 
of  proper  notice.1 

372.  A  trustee  under  a  railroad  mortgage  who  voluntarily 
removes  to  a  foreign  country  and  becomes  a  resident  there 
incapacitates  himself  from  discharging  the  duties  of  his  office, 
and  may  be  enjoined  from  acting  as  such  trustee,  and  from  fur- 
ther prosecuting  an  action  in  that  capacity.  The  Milwaukee  and 
St.  Paul  Railway  Company  executed  a  mortgage  to  two  trustees, 
one  of  whom  died,  and  the  duties  of  the  trust,  by  the  terms  of 
the  deed,  devolved  upon  the  surviving  trustee.  The  deed  pro- 
vided for  the  removal  of  the  trustees,  or  either  of  them,  by  a  vote 
of  a  majority  in  interest  of  the  holders  of  the  bonds,  at  any  meet- 
ing called  for  that  purpose;  and  in  case  of  the  death,  removal, 
resignation,  incapacity,  or  inability  of  both  or  either  of  the  trus- 
tees, it  was  further  provided  that  a  majority  of  the  holders  of  the 
bonds  might  designate  and  select,  in  writing,  one  or  more  com- 
petent persons  to  fill  the  vacancy.  The  Farmers'  Loan  and 
Trust  Company  was  accordingly  so  selected  in  place  of  the  sur- 
viving trustee,  upon  the  assumption  that  he  had  permanently  re- 
moved from  the  state  and  become  a  resident  of  France,  he  hav- 
ing resided  there  for  upwards  of  ten  years  with  the  exception  oi 
slight  intervals  spent  in  this  country.  The  evidence  established 
the  charge  of  non-residence.  The  trust  conferred  was  personal 
and  incapable  of  delegation.     Such  a  trustee  is  generally         cted 

i  Washington,  Alexandria  &  Georgetown  K.  B.  Co.  ia&waehi 

K.  B,  Co.  l'J  Gratt.  (Va.)  vri. 

8   I 


§  373.]       THE   DUTIES   AND   RIGHTS   OF   MORTGAGE  TRUSTEES. 

because  of  confidence  in  his  integrity  and  capacity,  and  especial 
fitness  for  the  duties  imposed  by  the  trust.  The  duties  of  a 
trustee  under  such  a  mortgage  are :  "  First,  those  which  will 
arise  in  the  event  of  the  non-payment  of  interest,  and  of  fore- 
closure, namely  :  To  enter  into  and  upon  and  to  take  actual  pos- 
session of  all  the  property,  real  and  personal,  and  rights  and  fran- 
chises of  the  railway  company,  and  to  hold,  use,  and  enjoy  the 
same ;  to  make  repairs,  etc. ;  and  to  collect  and  receive  all  tolls, 
freight,  income,  rents,  issues,  and  profits  of  the  same,  and  of  every 
part  thereof.  Jn  the  contingency  of  foreclosure,  there  are  also 
these  further  duties  to  discharge,  namely  :  To  sell  at  public  auc- 
tion, to  the  highest  bidder,  the  entire  property,  real  and  personal, 
of  the  railway  company  ;  to  give  the  proper  notices  of  sale  ;  to 
execute  the  necessary  conveyances  ;  and  after  such  sale,  to  distrib- 
ute the  moneys  derived  from  operating  the  railway,  and  the  pro- 
ceeds of  sale,  in  their  proper  order,  among  the  parties  entitled 
thereto,  or,  at  the  request  of  a  majority  of  the  bondholders  secured 
by  the  mortgage,  to  buy  in  the  property,  real  and  personal,  of 
the  railway  company,  at  the  foreclosure  sale,  and  thereupon  to 
organize  a  new  corporation,  and  to  convey  the  premises  purchased 
to  such  new  corporation."  With  these  obligations  resting  upon 
him  the  court  declared  that  a  permanent  residence  abroad,  or  even 
a  temporary  residence  which  rendered  the  full  discharge  of  the 
duties  of  the  trust  uncertain,  would  revoke  the  trust,  and  therefore 
held  that  his  removal  was,  primd  facie,  authorized,  and  that  he 
should  be  restrained  from  acting  as  trustee,  and  from  prosecuting 
any  action  in  his  name  as  trustee.1 

373.  A  trustee  under  two  railroad  mortgages  will  not  be 
removed,  for  the  reason  that  he  declines  to  employ  counsel  for 
the  foreclosure  of  the  first  mortgage,  selected  by  a  majority  of 
the  bondholders  under  that  mortgage,  and  also  declines  to  elect 
to  act  as  trustee  under  one  of  the  mortgages  only,  and  to  resign 
his  trusteeship  under  the  other.  It  does  not  avail  that  the  appli- 
cation is  made  by  a  majority  of  the  bondholders,  for  they  have  no 
absolute  right  to  demand  a  removal.  A  removal  will  not  be  made 
without  sufficient  grounds.2  Such  complaints  do  not  affect  the 
character  of  the  trustee  for  integrity.     It  may  be  that  he  is  acting 

1  Farmers' Loan  &  Trust  Co.  v.  Hughes,  2  Beadleson  v.  Knapp,  13  Abb.  (N.  Y.) 
11  Hun  (N.  Y.),  130.  Pr.  N.  S.  335. 

352 


REMOVAL    OF   TRUSTEES   AND    FILLING    OF    VACANCIES.       [§  374. 

with  sound  judgment  in  declining  to  act  separately  in  foreclos- 
ing either  of  the  mortgages  upon  the  default  which  has  occurred. 
The  question  whether  the  road  shall  be  sold  under  foreclosure  in 
parcels,  according  to  the  portions  included  in  the  two  mortgages, 
is  probably  one  of  nice  discretion,  to  be  judicially  determined  by 
the  court  with  reference  to  the  effect  of  the  sale  upon  the  inter- 
ests of  the  bondholders  under  both  mortgages,  and  upon  the  stock- 
holders as  well. 

374.  A  statute  providing  that  in  case  a  railroad  be  in  pos- 
session of  trustees  under  a  mortgage,  the  bondholders  may 
annually  nominate  a  board  of  five  trustees,  and  present  their 
proceedings  to  a  chancellor  for  the  purpose  of  obtaining  a  decree, 
confirming  the  nomination  of  the  new  trustees,  and  of  transferring 
the  property  from  the  old  to  the  new  trustees,  impairs  the  obliga- 
tion of  contract  contained  in  a  mortgage  made  prior  to  the  stat- 
'ute,  which  provides  for  a  succession  of  trustees  by  empowering 
the  surviving  trustee  to  fill  any  vacancy,  and  upon  his  failure  so 
to  do  gives  the  railroad  company  a  right  to  apply  to  a  court  of 
chancery  for  the  appointment  of  trustees  ;  and  consequently  such 
a  statute  is  in  this  respect  repugnant  to  the  provision  of  the  Con- 
stitution of  the  United  States,  which  prohibits  a  state  from  pass- 
ing any  law  impairing  the  obligation  of  a  contract.1     The  effect 
of  the  act  was  to  confer  upon  the  chancellor  the  right  to  control 
not  only  the  equitable  interests  of  the  bondholders,  as  well  as  of 
•  the  railroad  corporation,  but  also  the  legal  title  in  the  trustees; 
and  this  is  while  the  trust  is  still  an  active  one,  involving  active 
duties  on  the  part  of  the  trustees,  and  while  they  have  personal 
claims  upon  the  trust  property  for  indemnity  for  advances  made 
and  liabilities  incurred.     It  was,  moreover,  a  matter  of  election 
with  the  bondholders  that  they  have  become  such,  with  the  trus- 
tees the  railroad  company  had  constituted,  and  with  the  trusts 
specified  in  the  deed,  including  the  power  of   perpetuating  the 
board  of  trustees.     The  bondholders,  too,  had  an  interest   in  the 
personal  administration  of  the  trust  by  the  trustees  named  in  the 
mortgage,  and  those  who  should  1m-  appointed  in  pursuance  of  the 
power  therein  contained.     The  trustees  themselves  had  certain 
vested  rights  secured  to  them  by  the  <h-rA,  and  a  Legal  interest 
in  their  office,  and  they  cannot  be  divested  except  by  due  course 
i  Fletcher  o.  Rutland  &  Burlington  It.  B.  <'<>  ;;'.i  Vi.  638. 

as  858 


§§  375,  376.]       THE   DUTIES   AND   RIGHTS   OF   MORTGAGE   TRUSTEES. 

of  law.  The  railroad  corporation  itself  had  an  interest  in  the 
administration  of  the  trust ;  and  the  law  will  not  be  allowed  to 
impair  their  vested  rights. 

375.  Where  it  is  provided  that  any  vacancies  in  the  board 
of  trustees  under  such  a  mortgage  shall  be  filled  from  the 
bondholders,  an  election  of  persons  who  have  qualified  them- 
selves for  the  purpose,  by  procuring  bonds,  is  valid  unless  fraud 
was  intended.1  Neither  does  such  a  trustee  discharge  himself  or 
disqualify  himself  from  executing  the  trust  by  subsequently  part- 
ing with  the  bonds  required  as  a  qualification.2  He  cannot,  after 
acceptance  of  the  trust,  disqualify  himself  by  his  own  act.  He 
can  only  be  discharged  by  virtue  of  a  special  provision  in  the  deed 
creating  the  trust,  or  by  decree  of  a  court  of  competent  jurisdic- 
tion ;  unless,  perhaps,  it  be  with  the  general  consent  of  all  persons 
interested  in  the  execution  of  the  trust. 

376.  When  a  trust  mortgage  provides  that  any  vacancy 
occurring  in  the  board  of  trustees  shall  be  immediately  filled, 
and  the  intention  is  apparent  that  the  board  shall  always  be  kept 
full,  no  proceedings  can  be  taken  by  the  trustees  or  any  of  them 
while  there  is  a  vacancy  in  the  board  ;  they  cannot  take  posses- 
sion of  the  mortgaged  property,  or  bring  suit  to  foreclose  the  mort- 
gage. If  a  suit  has  already  been  commenced  when  a  vacancy 
occurs,  it  does  not  thereupon  abate,  but  must  be  postponed  until 
the  vacancy  is  filled.3 

V.  Statutory  Provisions  regulating  the  Duties  of  Mortgage  Trustees 
and  the  Choosing  of  New  Trustees. 

In  the  New  England  States  there  are  statutes  which  prescribe 
more  or  less  fully  the  duties  of  trustees  under  railroad  mortgages, 
and  provide  for  the  choice  of  new  trustees  at  stated  times,  or 
upon  the  happening  of  vacancies.  The  principal  provisions  of 
these  statutes  are  given,  as  they  are  essential  and  important  parts 
of  the  law  in  these  states  governing  railroad  mortgages. 

i  Richards  v.  Merrimack  &  Conn.  River  3  Shaw  v.  Norfolk  County  R.  R.  Co.  5 
R  R.  Co.  44  N.  H.  127.  Grayf  Mass.),  162. 

2  Richards  v.  Merrimack  &  Conn.  River 
R.  R.  Co.  supra. 

354 


STATUTORY    PROVISIONS    REGULATING.  [§  377. 

377.  Maine.1 — When  a  railroad  corporation  mortgages  its 
franchise  for  the  payment  of  its  bonds  or  coupons,  and  trustees 
are  appointed  by  it,  or  by  special  law,  or  by  the  mortgage,  the 
bondholders,  at  a  regular  meeting  called  for  the  purpose,  may 
from  time  to  time  elect  by  ballot  new  trustees  to  fill  vacancies, 
or  take  the  place  of  others  holding  the  trust ;  but  no  trustee  can 
be  thus  removed  until  he  is  paid  for  all  that  is  due  him,  and 
secured  against  all  liabilities  assumed  by  him  as  such  trustee. 
Any  party  interested  may  present  the  proceedings  of  such  meet- 
ing to  the  Supreme  Judicial  Court,  or  to  a  justice  thereof  in  vaca- 
tion, who  thereupon  appoints  a  time  of  hearing,  and  orders  such 
notice  to  parties  interested  as  he  deems  proper,  and  may  affirm 
such  elections,  and  make  and  enforce  any  decrees  necessary  Eor 
the  transfer  of  the  trust  property  to  the  new  trustees.  All  such 
decrees  are  filed  with  the  clerk  of  the  court  where  the  hearing  is 
had,  and  recorded  by  him. 

The  neglect  of  the  coi*poration  to  pay  any  overdue  bonds  or 
coupons  secured  by  such  mortgage,  for  ninety  days  after  present- 
ment and  demand  on  the  treasurer  or  president  thereof,  is  a 
breach  of  the  conditions  of  the  mortgage  ;  2  and  thereupon  the 
trustees  are  required  to  call  a  meeting  of  the  bondholders,  by  pub- 
lishing the  time  and  place  thereof  three  weeks  successively  in  the 
state  paper,  and  in  some  paper  in  the  county  where  the  road  lies, 
the  last  publication  to  be  one  week  at  least  before  the  time  of  the 
meeting,  if  they  so  determine,  the  trustees  take  possession  of 
such  road  and  all  other  property  covered  by  the  mortgage,  and 
have  all  the  rights  and  powers,  and  are  subject  to  all  the  obliga- 
tions of  the  directors  and  corporation  of  such  road,  and  may  also 
prosecute  and  defend  suits  in  their  own  name  as  trustees.  They 
are  required  to  keep  an  accurate  account  of  all  receipts  and  ex- 
penditures of  such  road,  and  exhibit  it  on  request  to  any  officer 
.,t'  tie-  corporation  or  other  person  interested;  from  the  receipts,  t<> 
keep  tlw  road,  buildings,  and  equipments  in  repair,  mid  to  fur- 
nish such  new  rolling  slock  as  is  necessary ;  and  the  balance,  after 
paying  the  running  expenses,  to  apply  according  to  the  rights  <>f 
parties  under  th-  mortgage,  and  to  the  paymenl  of  any  damages 
arising  from  misfeasance  in  the  managemenl  of  the  road.  They 
are  not  personally  liable  except  for  malfeasance  or  fraud.     When 

i  \i.  S.1871,ch.51,  '  R.    8.    1871,  ch.  51,  §§  48,  50,  51,  52. 

And  bcc  A.CI  L878,  cta.68. 

865 


§  378.]       THE   DUTIES   AND   RIGHTS    OF   MORTGAGE   TRUSTEES. 

all  overdue  bonds  and  coupons  secured  by  the  mortgage  are  paid, 
they  must  surrender  the  road  and  other  property  to  the  parties 
entitled  thereto.  The  bondholders  may  fix  the  compensation  of 
the  trustees,  and  may  instruct  them  to  contract  for  the  running  of 
the  road,  or  give  them  any  other  instruction  they  deem  advisable ; 
and  the  trustees  must  conform  thereto,  unless  inconsistent  with 
the  terms  of  the  trust. 

The  trustees,  on  application  of  one  third  of  the  bondholders  in 
amount  to  have  such  mortgage  foreclosed,  are  required  immedi- 
ately to  give  notice  thereof,  by  publishing  it  three  weeks  succes- 
sively in  the  state  paper,  and  some  paper,  if  any,  in  each  county 
in  which  the  road  extends,  therein  stating  the  date  and  conditions 
of  the  mortgage,  the  claims  of  the  applicants  under  it,  that  the 
conditions  thereof  have  been  broken,  and  that  for  this  reason  they 
claim  a  foreclosure  ;  and  to  cause  a  copy  of  such  notice,  and  the 
name  and  date  of  each  newspaper  containing  it,  to  be  recorded  in 
the  registry  of  deeds  in  each  such  county,  within  sixty  days  from 
the  first  publication ;  and  unless,  within  three  years  from  the  first 
publication,  the  mortgage  is  redeemed  by  the  mortgagors  or  those 
claiming  under  them,  or  a  bill  in  equity  as  in  cases  of  the  redemp- 
tion of  mortgaged  lands  is  commenced,  founded  on  payment  or  a 
legal  tender  of  the  amount  of  overdue  bonds  and  coupons,  or  con- 
taining an  averment  that  the  complainants  are  ready  and  willing 
to  redeem  on  the  rendering  of  an  account,  the  right  of  redemption 
is  forever  foreclosed.  Each  holder  of  overdue  bonds  or  coupons 
must  present  them  to  the  trustees  at  least  thirty  days  before  the 
right  of  redemption  expires,  to  be  by  them  recorded ;  but  such 
right  is  not  lost  by  the  non-payment  of  any  claims  not  so  pre- 
sented ;  and  the  parties  having  the  right  to  redeem  have  free 
access  to  the  record  of  such  claims.1 

378.  New  Hampshire.2  —  The  trustees,  to  whom  any  railroad 
has  been  assigned  or  conveyed  in  mortgage  for  the  benefit  of  the 
creditors,  are  required  to  call  a  meeting  of  the  creditors  whose 
claims  are  secured  by  such  mortgage,  once  a  year,  to  be  holden 
at  some  place  on  or  near  such  railroad,  by  publication  in  two 
daily  papers  published  in  Boston,  and  one  paper  in  each  county 
in  which  such  railroad  is  located.  If  such  trustees,  on  application 
of  such  creditors,  to  the  amount  of  one  third  of  the  whole  sum 

i  R.  S.  1871,  ch.  51,  §§  53,54.         *   G.  S.  1867,  ch.  151,  §§1-8;  G.  S.  1878, 
356  ch.  165. 


STATUTORY   PROVISIONS  REGULATING.  [§  379. 

secured,  do  not  within  fourteen  days  call  such  meeting,  five  or 
more  such  creditors  holding  the  like  amount  of  claims  may  call 
such  meeting  in  the  same  manner.  At  such  meeting,  the  trus- 
tees are  required  to  make  a  report  of  the  state  of  the  trust  prop- 
erty, and  of  their  proceedings  and  management  in  relation  there- 
to, according  to  the  usual  custom  of  directors  of  railroads,  to  the 
stockholders.  The  creditors  at  such  meeting  may  elect  by  ballot 
three  or  five  trustees,  being  creditors,  and  a  majority  at  least  resi- 
dents of  the  state  ;  each  creditor  being  entitled  to  one  vote  for 
each  hundred  dollars  of  his  debt,  and  having  the  same  right 
to  vote  by  proxy  as  stockholders  of  railroads  at  their  meetings. 
Upon  the  election  of  new  trustees,  the  interest  of  the  former  trus- 
tees must  be  transferred  to  and  vest  in  such  new  trustees  ;  and 
the  former  trustees  render  and  settle  an  account  of  their  trust  to 
and  with  such  successors,  and  pay  and  transfer  to  them  the  mort- 
gaged estate,  and  any  balance  of  funds  in  their  hands  ;  and  if  a 
balance  is  due  said  retiring  trustees,  the  assets  of  the  trusts  are 
charged  therewith.  No  trustees  or  assignees  of  any  railroad  mort- 
gage, who  have  the  railroad  in  their  charge,  are,  as  such,  and 
without  their  own  default,  personally  responsible  for  any  damage, 
by  collision  or  force,  occurring  to  any  passenger  or  to  freight  upon 
such  railroad.  In  case  of  such  damage,  the  company  assigning  or 
mortgaging  the  railroad  is  liable  ;  and  the  assets  in  the  hands  of 
the  trustees  are  holden  for  such  damage  as  part  of  the  expenses 
of  the  trust,  in  preference  to  the  claims  of  the  general  creditors 
of  the  company.  The  Supreme  Court  has  summary  power  to 
make  all  orders  and  decrees  necessary  to  carry  such  trusts  into 
effect. 

379.  Vermont.1  —  It  is  the  duty  of  trustees,  so  long  as  they 
continue  in  possession  of  any  railroad  under  a  mortgage,  to  call 
a  meeting  of  the  bondholders  or  creditors  for  the  security  of  whose 
claims  they  hold  Buch  property  in  trust,  at  some  convenient  place 
on  or  near  the  line  of  such  road,  in  the  month  of  January  in  each 
year,  by  giving  notice  of  BUCh  meeting  at  least,  twenty  days  pre- 
vious thereto,  in  two  or  more  daily  papers,  published  in  each  of 
the  cities  of  Boston  and  New  York,  and  in  at  least,  one  paper 
published  in  each  county  through  which  the  said  road  is  Located, 
if  any  such  there  be;  and  at  such  meeting  the  said  trustees  must 

1  O.  SI  1870.  cli.  28,8  103. 

857 


§  379.]       THE   DUTIES    AND   RIGHTS    OF    MORTGAGE   TRUSTEES. 

submit  a  report  of  the  whole  earnings  of,  and  expenditures  upon 
and  for,  the  trust  property  and  estate  for  the  year,  and  also  of  their 
business  and  proceedings,  according  to  the  usual  custom  of  rail- 
road directors,  to  the  stockholders. 

Whenever  the  owners  or  holders  of  notes,  bonds,  or  obligations, 
secured  by  a  railroad  mortgage,  to  an  amount  of  not  less  than  fifty 
thousand  dollars,  and  in  number,  five  or  more,  deem  any  trustee 
of  such  mortgage  to  be  an  unsuitable  person  to  administer  such 
trust,  they  may  apply  by  petition  to  any  chancellor  for  the  re- 
moval of  such  trustee,  setting  forth  in  a  general  manner  the 
grounds  and  reasons  for  such  removal.1  The  court,  thereupon, 
appoints  some  early  day  for  hearing  such  petition,  and  gives  due 
notice  thereof  to  the  trustees  of  such  mortgage,  and  to  all  other 
persons  interested,  taking  especial  care  to  give  notice  of  such  ap- 
plication, and  of  the  time  and  place  of  hearing,  to  all  persons  in- 
terested who  reside  out  of  this  state,  by  publication  in  one  or  more 
daily  newspapers  published  in  Boston  and  New  York.  Upon  the 
hearing,  the  petitioners  and  trustees,  and  all  other  witnesses,  may 
be  examined  orally  before  the  chancellor  ;  or  in  his  discretion  the 
chancellor  may  appoint  a  special  master  or  masters  to  take  the 
testimony  and  report  the  same  to  the  court.  The  witnesses  are 
examined  as  to  all  alleged  breaches  of  trust,  or  neglect,  or  omis- 
sions of  duty  ;  as  to  the  fitness  and  competency  of  the  trustees  ; 
as  to  their  holding  any  other  offices,  or  having  any  interests,  either 
of  a  public  or  private  nature,  inconsistent  in  any  way  with  the 
true  interests  of  the  cestuis  que  trust,  or  interfering  in  any  way 
with  the  prompt,  fair,  and  impartial  discharge  of  the  duties  of 
such  trusts ;  and  as  to  all  circumstances  or  conduct  of  the  trus- 
tees which  render  it  improper  for  the  interests  of  the  trust  to 
continue  them  in  office.  If,  upon  the  hearing,  the  chancellor  finds 
that  such  trustee  ought  to  be  removed,  he  decrees  his  removal, 
appoints  a  new  trustee  or  trustees,  and  makes  such  orders  and 
decrees  as  to  the  transfer  and  conveyance  of  the  trust  property 
from  the  old  to  the  new  trustees,  as  to  ascertaining  the  debts 
and  liabilities  of  the  old  trustees  and  the  payment  of  the  same, 
as  to  the  future  management  of  the  trust  and  the  accounting 
thereon,  and  generally  as  to  all  other  matters  and  things  con- 
nected with  such  trust,  as  the  exigencies  of  the  case,  the  protec- 

l  G.  S.  1870,  ch.  28,  §§  113,  114. 

358 


STATUTORY   PROVISIONS  REGULATING.  [§  380. 

tion  of  the  old  trustees,  and  the  security  and  welfare  of  the  trust 
fund  may  require. 

380.  Massachusetts.1 —  When  a  corporation,  having  executed 
a  mortgage  of  its  property,  rights,  and  privileges,  or  any  part 
thereof,  to  trustees,  for  the  benefit  of  its  general  creditors  or  of 
any  particular  class  of  creditors,  has  made  default  in  the  perform- 
ance of  the  condition  so  that  the  trustees  or  their  successors  are 
entitled  to  the  actual  possession  and  usufruct  of  the  property, 
rights,  and  privileges,  therein  conveyed  in  trust  for  the  purposes 
specified  in  the  mortgage,  the  trustees,  instead  of  retaining  in 
their  own  hands  the  actual  possession  of  the  mortgaged  premises 
and  running  the  trains  under  their  own  direction  and  on  their 
own  responsibility,  may  contract  with  the  corporation  to  take  and 
retain  for  them  the  possession  and  use  of  the  mortgaged  prem- 
ises, and  use  and  operate  the  same  on  its  own  responsibility  under 
the  direction  of  its  officers,  accounting  with  the  trustees  for  the 
earnings  and  income,  and  paying  over  the  net  income  and  profits 
periodically  when,  and  as  far  as  the  same  may  by  the  terms  of  the 
mortgage  be  necessary  for  the  fulfilment  of  its  conditions,  pro- 
vided,  that  all  liabilities  incurred  by  the  corporation  or  other 
party  in  operating  the  road  under  such  contract  be  held  as  claims 
against  and  paid  out  of  the  income  in  the  same  manner  and  to 
the  same  extent  as  if  the  property  had  remained  in  the  actual 
possession  of  the  trustees,  and  been  operated  by  them  ;  and  pro- 
vided, that  at  a  meeting  of  the  bondholders  or  creditors  under  the 
mortgage  duly  notified  in  two  or  more  daily  newspapers  pub- 
lished in  the  city  of  Boston,  and  in  one  newspaper  at  least  in  each 
county  through  which  the  road  is  located,  ten  days  before  said 
meeting,  a  majority  in  amount  of  those  present  or  represented 
shall  vote  in  favor  of  such  contract,  each  bondholder  or  creditor 
casting  one  vote  personally  or  by  proxy  for  every  hundred  dollars 
held  by  him. 

Trustees  in  possession  of  a  railroad  under  a  mortgage  must  an- 
nually notify  a  meeting,  to  be  held  in  December,  of  the  bond- 
holders or  creditors  for  whose  security  they  hold  (lie  road  in  trust, 
such  notice  to  be  published  at  least  ben  days  previously  to  the 
time  of  holding  such  meeting,  in  two  or  more  daily  newspapers 

i  G  S   18G0  ch.  G3,  §§  124-128.    For  original  Btatutesce  An,  1857,  ch,  its. 

859 


§  380.]       THE   DUTIES   AND   RIGHTS   OF   MORTGAGE   TRUSTEES. 

in  Boston,  and  in  one  paper  at  least  in  each  county  through  which 
the  road  is  located  ;  and  at  such  meeting  they  must  submit  a 
report  of  their  doings  for  the  year,  similar  to  the  annual  report 
of  railroad  directors  to  stockholders.     On  or  before  the  thirty-first 
day  of  December,  annually,  they  are  required  to  transmit  to  the 
Secretary  of  the  Commonwealth  the   same  returns  of  their  acts, 
doings,  receipts,  and  expenditures,  as  are  required  of  railroad  cor- 
porations, and  are  subject  to  the  same  forfeitures  and  penalties 
for  any  default.     Upon  failure  of  the  trustees  to  call  the  meeting 
as  required,  five  or  more  bondholders  or  creditors,  whose  claims 
secured  by  the  mortgage  amount  to  not  less  than  ten  thousand 
dollars,  may  in  the  same  manner  call  such  meeting  to  be  held  in 
the  January  following  said  December.     At  the  annual  meeting 
held  under  either  of  these  two  provisions,  the  bondholders  or  cred- 
itors may  elect  three  trustees  under  the  mortgage  for  the  ensuing 
year,  and  until  others  are  chosen  and  qualified,  each  bondholder  or 
creditor  casting  in  person  or  by  proxy  one  vote  for  each  hundred 
dollars  due,  and  secured  to  him  under  the  mortgage.     And  the 
trustees,  or  either  of  them,  or  any  bondholder  or  creditor,  may  in 
a  summary  manner  present  the  proceedings  of  the  meeting  to  a 
justice  of  the  Supreme  Judicial  Court,  in  court  or  at  chambers, 
the  party  presenting  such  proceedings   giving  notice  thereof,  and 
of  his  intention  to  move  for  the  affirmation,  to  the  former  trustees 
under  the  mortgage,  to  the  trustees  of  every  other  existing  mort- 
gage upon  the  road,  and  to  the  corporation  giving  the  mortgage, 
seven  days  at  least  before  the  hearing  thereon  ;  which  notice  may 
be  served  by  any  officer  or  indifferent  person.     The  justice  may 
hear  the  parties  and  ratify  the  election,  and  make  such  order  and 
decree   as  he  may  deem  necessary  and  just  to  transfer  the  prop- 
erty to  the  new  trustees  ;  which  order  and  decree  are  filed  in  such 
clerk's  office   of  the  court  as  the  justice  may  direct.     The  Su- 
preme Judicial  Court,  and  each  of  the  justices  thereof,  have  full 
equity  jurisdiction,   according  to  the  usage  and  practice  of  the 
courts  of  equity,  of  all  cases  arising  under  these  proceedings,  and 
of  all  questions  arising  out  of  railroad  mortgages,  and  may  in  a 
summary  manner  remove  any  trustee  under  a  railroad  mortgage, 
whether  such  trustee  is  in  possession  of  the  railroad  or  not,  and 
appoint  a  new  trustee  in  his  stead,  whether  such  trustee  is  elected 
by  the  bondholders  or  creditors  as  provided  by  statute  or  not. 
360 


STATUTORY    PROVISIONS   REGULATING.       [§§  381,  382. 

381.  Rhode  Island.1 — Whenever  any  railroad  corporation  mort- 
gages or  conveys  in  trust  its  railroad  or  railroad  property,  or  any 
part  thereof,  to  trustees,  for  the  security  of  its  bondholders  or 
other  creditors,  or  for  the  security  of  any  class  of  such  bondhold- 
ers or  other  creditors,  and  such  trustees  take  possession  of  any 
railroad  or  railroad  property,  in  pursuance  of  any  authority  con- 
tained in  their  mortgage  or  deed  of  trust,  and  take  charge  of,  and 
operate,  such  railroad  or  railroad  property  for  the  benefit  of  the 
creditors  for  whom  such  trust  was  created,  such  trustees  having 
the  assent  of  the  bondholders  are  not  personally  liable  for  any 
cause  or  injury  arising  from  the  opei-ation  of  such  road,  or  while 
they  may  operate  the  same,  except  for  their  wilful  mismanage- 
ment, or  for  any  contracts  made  by  them  as  such  trustees ;  but  all 
such  railroad  property,  the  bondholders  having  assented  thereto, 
is  liable  for  the  acts  and  proceedings  of  such  trustees  in  the  exe- 
cution of  their  trusts,  to  the  extent  of  the  interest  of  the  said  trus- 
tees of  the  bondholders  or  creditors  for  whose  benefit  such  trustees 
may  act ;  and  any  action  or  other  proceeding  therefor  must  be 
brought  against  such  trustees,  describing  them  as  such. 

382.  In  Connecticut,2  it  is  provided  by  statute  that  when  any 
railroad  company  has  mortgaged  its  property,  or  any  part  thereof, 
to  any  person,  in  trust,  for  the  security  of  its  creditors,  or  for  the 
security  of  any  class  of  them,  and  has  made  default  in  the  pay- 
ment of  principal  or  interest,  due  to  such  creditors,  any  such  cred- 
itor may  prefer  his  petition  to  the  Superior  Court,  in  any  county 
in  which  such  railroad,  or  any  part  thereof,  is  located,  setting 
forth  such  fact,  and  praying  that  such  trustee  may  be  placed  in 
the  possession  of  such  property,  for  the  benefit  of  such  creditors  ; 
and  such  petition  is  heard  and  determined  at  the  first  term  of 
the  court  to  which  it  is  returnable,  unless  continued  tor  reason- 
able cause;  and  if  the  allegations  therein  are  found  (rue,  such 
court  decrees  that  the  said  company  and  its  president  and  direc- 
tors, under  a  suitable  penalty,  shall  surrender  such  mortgaged 
property  to  tin-  trustee,  Eor  the  benefit  of  such  creditors. 

When  any  such  trustee  has  taken  possession  of  any  property, 
in  pursuance  "f  an  order  of  court,  or  in  pursuance  "I  any  authority 
contained  in  the  mortgage  or  deed  of  trust,  he  fakes  oharg 
and  operates  such  railroad,  or  railroad  property,  Eor  the  benefil  "t 

i  G.  S.  1872,  eh.  1G7,§  11.  -  <!•  8.  1875,  pp.  833,834. 

861 


§  382.]       THE   DUTIES   AND   RIGHTS   OF   MORTGAGE   TRUSTEES. 

the  creditors  for  whom  such  trust  was  created,  and  is  not  person- 
ally liable  for  any  cause  or  injury  arising  from  the  operation  of 
such  road,  or  while  he  may  operate  it,  except  for  his  wilful  mis- 
management, or  for  any  contracts  made  by  him  as  such  trustee ; 
but  all  such  property  is  liable  for  the  acts  and  proceedings  of  such 
trustee,  in  the  execution  of  his  trust,  to  the  extent  of  the  interest 
of  the  creditors,  for  whose  benefit  he  may  act;  and  any  proceed- 
ing, for  the  purpose  of  making  said  property  liable,  must  be 
brought  against  such  trustee,  describing  him  as  such. 

The  trustee  is  required  to  file  an  inventory  of  the  property 
taken  possession  of  in  the  office  of  the  secretary  of  state  ;  where 
also  he  is  required  to  file  quarterly  accounts  of  the  moneys  re- 
ceived and  paid  by  him  in  the  course  of  his  agency.  He  is  au- 
thorized to  proceed  at  his  discretion  in  the  Superior  Court  in 
any  county  in  which  the  railroad,  or  any  part  of  it,  is  located,  to 
foreclose  for  the  use  of  the  bondholders,  or  other  creditors  for 
whom  he  acts ;  and  the  court  may  limit  the  time  for  the  redemp- 
tion of  the  mortgaged  property,  as  in  ordinary  proceedings  for  the 
foreclosure  of  real  property.  The  trustee  may  be  removed  for 
cause,  such  as  neglect  or  delay  in  the  performance  of  his  duties, 
and  a  new  one  appointed  in  his  place. 

The  rights  of  prior  incumbrancers  are  not  affected  by  these 
proceedings.  A  trustee  in  possession  has  the  same  rights,  powers, 
and  privileges  as  are  conferred  upon  railroad  companies  ;  and  all 
expenses  and  damages  incurred  in  good  faith  to  improve  the  road 
ai'e  reimbursed  from  the  earnings  of  the  road.  All  reasonable 
expenses  of  the  trustee,  and  damages  for  injuries  sustained  during 
the  time  of  his  trust,  and  payments  of  prior  incumbrances  which 
have  matured,  and  also  a  reasonable  compensation  to  be  allowed 
by  the  court,  are  deducted  from  the  earnings  of  the  road  before 
any  part  is  paid  to  the  creditors. 
362 


CHAPTER   XII. 

PAYMENT   AND   REDEMPTION. 

I.  Stipulation  for  payment  in  gold  or  cur-  i  III.  Payment  of  lost  bonds,  3S9. 
rency,  383,  384.  IV.  Subrogation,  390-394. 

II.  Changes  in  form  and  amount  of  debt,     V.  Redemption,  395-397. 
385-388.  | 

I.  Stipulation  for  Payment  in  Gold  or  Currency. 

383.  It  is  well  settled  that  a  provision  for  the  payment  of 
bonds  or  coupons  in   gold  coin  is  valid,  and  may  be  enforced.1 

The  State  of  Alabama,  by  an  act  of  its  legislature  in  18G7,  au- 
thorized its  governor  "  to  indorse  in  behalf  of  the  state  the  first 
mortgage  bonds  of  any  railroad  company  in  the  state  having 
completed  and  equipped  twenty  continuous  miles  of  railroad,  at 
the  rate  of  $12,000  per  mile,  for  each  section  so  completed  and 
equipped."  The  bonds  of  the  company  bearing  interest  at  a  rate 
not  exceeding  eight  per  cent.,  so  indorsed  by  the  governor,  are  de- 
clared to  have  priority  in  favor  of  the  state  over  any  and  all  other 
liens  whatsoever.  The  Montgomery  and  Eufaula  Railroad  Com- 
pany took  advantage  of  this  act,  but  did  not  execute  any  trust 
deed  or  mortgage  of  its  property  to  secure  its  bonds,  the  state  re- 
lying upon  its  statutory  lien.  The  indorsement  by  the  governor 
referred  to  the  act  providing  for  it  as  his  authority.  The  company 
having  defaulted  its  interest,  the  holders  of  a  part  of  the  bonds 
brought  a  suit  in  behalf  of  themselves  and  all  other  bondholders 
who  might  come  in,  praying  that  they  might  be  subrogated  to 
the  lieu  and  rights  of  the  state  upon  the  property  of  the  company, 
that  the  lien  might  be  established  and  the  property  and  franchise 
of  the  company  sold.  It  was,  however,  claimed  that  the  indorse- 
ment was  void,  and  consequently  that  there  was  no  statutory  lien, 
because  while  tie-  statute  only  authorized  the  indorsement  of  bonds 
bearing  eight  per  cent,  interest,  the  bonds  issued  and  indorsed  in 

1  Trebilcock  v.  Wilson,  L2  Wall.  687;     195;  State  of  Missouri  v,   Bays,  50  Mo. 
Pollard  v.  City  of  Pleasant  Hill,  8  Dill.     34.     Sec  2  Jones  on  Mori-.  §  901. 

363 


§  384,  385.]  PAYMENT    AND   REDEMPTION. 

this  case  bore  eight  per  cent,  interest  in  gold;  that  the  agreement 
to  pay  the  interest  in  gold  was  an  agreement  to  pay  more  than 
eight  per  cent,  interest.  But  the  court  held  the  fair  construction 
of  the  statute  to  be  that  the  interest  might  be  made  payable  in 
any  Legal  tender  currency  ;  and  that  whether  gold  might  be  at  a 
premium  or  at  a  discount  in  respect  to  the  treasury  notes  of  the 
United  States  was  immaterial,  as  both  are  equally  lawful  money.1 

384.  Under  the  legal  tender  acts,  an  undertaking  to  pay  in 
gold  must  be  either  express  or  implied  from  the  contract ;  the 
implication  cannot  be  gathered  from  the  mere  expectations  of  the 
parties.2  The  State  of  Maryland,  having  a  large  interest  in  the 
Baltimore  and  Ohio  Railroad  Company,  to  enable  it  to  finish  its 
road,  loaned  it  sterling  bonds  of  the  state,  with  interest  at  five  per 
cent,  per  annum,  payable  in  London.  This  interest  the  state  was, 
of  course,  obliged  to  pay  in  gold.  The  railroad  company,  by  way 
of  indemnity,  agreed  to  pay  interest  to  the  state  out  of  the  profits 
of  the  road  at  a  specified  rate,  and  in  parts  of  the  contract  it  ap- 
peared that  a  complete  indemnification  was  specifically  and  care- 
fully provided  for.  At  the  time  the  contract  was  made,  there  was 
no  difference  existing  or  anticipated  in  the  value  of  currency  and 
coin,  but  after  the  passage  of  the  legal  tender  acts,  the  interest 
which  the  railroad  company  stipulated  to  pay,  if  paid  in  legal 
tender  notes,  would  fall  very  much  short  of  indemnifying  the 
state  for  its  payment  of  the  interest  upon  its  bonds  in  gold. 
The  question,  therefore,  arose  whether,  by  the  contract  between 
the  parties,  the  state  was  entitled  to  demand  in  gold  what  was 
payable  to  her,  or  whether  it  might  be  satisfied  in  legal  tender 
notes.  The  Supreme  Court  of  the  United  States  held  that  no 
implication  of  an  undertaking  to  pay  in  gold  could  be  drawn  from 
the  fact  that  unless  the  contract  should  be  so  interpreted  there 
was  no  complete  indemnification  of  the  state.3 

II.    Changes  in  Form  and  Amount  of  Debt. 

385.  A  change  in  the  form  of  the  mortgage  debt,  such  as 
the  substitution  of  new  bonds  for  those  originally  secured  by  it, 

1  Young  v.  Montgomery  &  Eufaula  R.  2  Knox  v.  Lee,  12  Wall.  457. 

R.  Co,  2  Woods,  G06.     And  see  Butler  v.  3  Maryland  v.  Railroad   Co.  22    Wall. 

Horwitz,  7  Wall.  258  ;  Meyer  v.  City  of  105. 
Muscatine,  1  Wall.  384,  391. 

864 


CHANGES   IN   FORM   AND   AMOUNT    OF   DEBT.  [§  386. 

does  not  extinguish  or  affect  the  lien.1  A  railroad  company  hav- 
ing executed  a  mortgage  to  secure  a  limited  amount  of  bonds, 
afterwards  executed  another  mortgage  of  the  same  property  to 
secure  a  larger  amount  of  bonds,  and  the  deed  recited  that  the 
holders  of  the  bonds  secured  by  the  original  mortgage  had  agreed 
to  surrender  the  same,  and  receive  in  their  place  new  bonds  to  be 
secured  by  the  original  mortgage  as  modified  by  the  second  mort- 
gage. Accordingly,  all  the  bonds  secured  by  the  first  mortgage, 
except  twenty,  were  exchanged  for  bonds  secured  by  the  second. 
Upon  the  foreclosure  of  this  mortgage,  the  holders  of  these  twenty 
bonds  claimed  to  have  priority  over  all  the  new  bonds  issued  to 
take  up  the  original  bonds,  and  that  they  should  be  paid  in  pref- 
erence out  of  the  proceeds  of  the  sale.  They  based  their  claim 
upon  the  theory  that  the  new  bonds  issued  in  lieu  of  the  original 
bonds  were  in  no  way  secured  by  the  original  trust  deed,  but  were 
a  lien  upon  the  property  only  by  virtue  of  the  second  deed.  But 
the  court  declared  that  the  provisions  of  the  latter  deed  clearly 
revealed  the  purpose  of  the  parties,  that  the  bondholders  surren- 
dering their  original  bonds  for  the  new  ones  should  not  lose  any 
right  or  estate  granted  by  the  first  deed,  except  so  far  as  that  was 
modified  by  the  second ;  and  that  the  bondholders  consented  to 
give  up  their  old  bonds  and  take  the  new  ones  upon  this  express 
condition ;  and  therefore,  the  court  held  that  the  holders  of  these 
twenty  bonds  were  not  entitled  to  be  paid  out  of  the  proceeds  of 
the  sale  in  preference  to  the  holders  of  the  substituted  bonds ;  but 
that  they  could  not  be  prejudiced  by  the  increase  of  the  number 
of  bonds  secured  by  the  second  mortgage,  and  consequently  were 
entitled  to  the  same  proportion  of  the  proceeds  of  the  mortgaged 
property  that  they  would  have  had  if  the  second  mortgage  had  not 
been  executed.2 

386.  When  the  amount  of  a  mortgage  is  limited  to  a  defi- 
nite sum  this  cannot  be  enlarged  either  by  the  mortgagor,  or 
by  the  trustees  of  the  bondholders,  or  by  a  court  of  equity,  so  as 
to  make  it  security  for  an  additional  sum.  The  La  Crosse  and 
Milwaukee  Railroad  Company  executed  a  mortgage  to  secure 
84,000,000  of  its  bonds  which  were  all  issued.  Upon  a  fore- 
closure of  the  mortgage,  many  of  the  bonds  having  been  issue  I  ;it 

1   Stevens  v.  Mid-Hants  By.  Co.  L.  It.         2  Ames  v.  N.  <  >.,  Mobile  &  Texas  R.  B 
Ch.  App.  1064.  Co.  ii  Woods,  2O0. 

o'Go 


§  38G.]  PAYMENT    AND   REDEMPTION. 

a  large  discount,  a  decree  was  entered  for  only  the  amount  which 
had  been  actually  given  for  the  bonds,  namely,  about  $2,800,000. 
A  party,  who  had  sold  to  the  company  a  large  amount  of  railroad 
iron  and  had  received  in  payment  for  it  bonds  at  eighty  percent., 
with  an  agreement  that  if  the  company  should  at  any  time  sell 
other  bonds  at  a  less  rate,  he  should  have  as  many  additional 
bonds  as  would  pay  him  for  the  iron  in  full,  estimating  the  bonds 
already  given  and  those  to  be  given  at  the  lowest  rate  at  which 
any  bonds  had  been  sold,  claimed  that  inasmuch  as  the  company 
had  sold  bonds  at  forty  per  cent.,  he  had  a  right  to  have  his  out- 
standing equity  with  the  company  adjusted  in  the  foreclosure 
suit,  and  his  demand  attached  to  the  mortgage.  His  petition  was, 
however,  denied  by  the  Supreme  Court  of  the  United  States  ;  and 
Mr.  Justice  Davis,  delivering  the  opinion  of  the  court,  and  stating 
the  reasons  for  not  adjusting  his  claim  in  this  way,  said  : *  "  To  do 
this,  there  must  be  a  power  somewhere  to  enlarge  the  mortgage, 
and  where  is  it  lodged  ?  Certainly  not  with  the  trustees,  for  their 
duty  is  to  see  that  the  security  held  by  them  for  their  cestuis 
que  trust  is  enforced  according  to  the  terms  of  the  deed.  They 
could  neither  enlarge  the  mortgage,  nor  consent  to  its  enlarge- 
ment. The  court  could  not  do  it,  nor  the  La  Crosse  Company,  as 
it  had  covenanted  with  the  trustees  in  behalf  of  the  bondholders 
that  it  would  only  issue  four  millions  of  dollars  in  bonds.  The 
rio'hts  of  the  bondholders  were  fixed  by  the  terms  of  the  mort- 
gage. The  value  of  the  bonds  as  an  investment  depended  in  a 
great  measure  on  the  number  to  be  issued,  and,  doubtless,  each 
purchaser  before  he  bought  had  information  of  the  character  of 
the  security  on  which  he  relied.  The  property  might  be  very 
well  a  safe  security  for  four  millions  of  dollars,  and  very  unsafe 
for  any  additional  amount.  The  doctrine  contended  for  would 
utterly  destroy  the  marketable  value  of  all  corporate  securities. 
No  prudent  man  would  ever  buy  a  bond  in  the  market,  if  the 
provisions  made  for  its  ultimate  redemption  could  be  altered  with- 
out his  consent.  But  it  is  said,  as  the  court  rendered  a  decree 
for  less  than  the  face  of  the  bonds,  equity  will  step  in  and  allow 
the  appellant  to  apply  the  vacuum  of  principal  secured  by  the 
mortgage  to  liquidate  his  claim.  The  answer  to  this  is,  that  it 
does  not  concern  the  appellant  whether  the  court  rightfully  or 
otherwise  reduced  a  portion  of  the  bonds.  The  bondholders, 
1  Vose  v.  BronsoD,  6  Wall.  452. 

366 


CHANGES   IN    FORM    AND   AMOUNT    OF    DEBT.  [§  387. 

whose  bonds  were  thus  reduced,  are  the  only  parties  in  interest 
who  could  have  just  cause  of  complaint  against  the  action  of  the 
court,  and  if  they  did  not  feel  aggrieved,  no  other  person  has  any 
right  to  complain.  The  security  of  the  mortgage  extended  to 
four  millions  of  bonds  only,  and  whatever  amount  the  court  should 
ascertain  was  due  on  those  four  millions  was  the  amount  secured, 
and  no  more." 

387.  The  debt  secured  cannot  be  increased  as  against  sub- 
sequent incumbrancers  without  their  consent.1  The  trustees  of  a 
subsequent  mortgage  could  not  bind  the  bondholders  by  giving 
such  consent,  nor  would  the  consent  of  a  majority  of  the  bond- 
holders bind  the  minority.  Any  one  bondholder  can  insist  upon 
his  right  that  the  prior  incumbrance  shall  remain  unchanged. 

The  Atlantic  and  Great  Western  Railway  Company,  incorpo- 
rated under  the  laws  of  the  States  of  Ohio,  Pennsylvania,  and 
New  York,  and  owning  a  railway  extending  through  portions  of 
each  of  these  states,  made  a  first  mortgage  of  the  division  of  its 
road  situate  in  Ohio,  and  afterwards  a  second  mortgage  of  all  its 
property  situate  in  the  three  states.  Under  the  latter  mortgage 
a  foreclosure  suit  was  brought  in  each  of  the  three  states.  An 
agreement  was  afterwards  made  between  the  trustees  of  the  first 
mortgage  sanctioned  by  a  majority  of  the  bondholders  under  it, 
with  the  trustees  of  the  second  mortgage,  extending  the  time  of 
payment  of  the  first  mortgage  for  three  years,  and  changing  the 
interest  payable  during  such  extended  term  from  currency  to  gold. 
This  agreement  expressly  provided  that  it  was  not  to  take  effect 
until  it  was  confirmed  by  the  courts  in  each  of  the  three  states. 
It  was  confirmed  in  Ohio,  but  when  it  was  presented  for  confir- 
mation to  a  judge  of  the  Supreme  Court  of  New  York,  he  held 
that  he  had  no  power  to  sanction  any  change  in  the  effect  or 
terms  of  the  first  mortgage.2  "  The  court  has  no  authority  which 
would  permit  it  to  take  that  difference  (between  interest  in  cur- 
rency and  in  gold),  for  a  period  of  three  years,  from  the  holders  of 
the  second  mortgage  bonds  and  give  it  to  the  more  fortunate  own- 
of  the  first,  against  the  objections  of  those  resisting  the  pro- 
ding.  The  same  principle  which  would  sanction  a  small  in- 
crease of  the  prior  incumbrance  would  sustain  one  which  might 

1  Si.c   l  Jones   on  Mortgages,  §§357,        -  Taylor  v.  Atlantic  &  Greal  Western 
3C1.  By.  Co!  55  How.  (N.  V.)  Pr.  278. 

367 


§  388.]  PAYMENT   AND   REDEMPTION. 

prove  entirely  destructive  to  those  designed  to  be  protected  by  the 
succeeding  incumbrance  ;  and  if  the  court  had  the  power  over  the 
agreement  of  the  parties  to  change  it  in  any  material  respect  it 
could  entirely  destroy  its  value.  The  point  involved  is  one  of 
principle  solely,  for  if  the  power  exists  it  can  be  limited  in  its  ap- 
plication only  by  the  subject  to  be  affected  by  it.  Every  bond- 
holder is  equally  entitled,  by  the  agreement  made  with  him  and 
with  the  trustees  for  his  benefit,  to  be  protected  in  all  the  advan- 
tages legally  secured  by  it ;  and  for  that  reason  the  courts  cannot 
disregard  the  principle  protecting  him,  because  the  amount  due  to 
him  and  the  extent  to  which  he  may  be  entitled  to  participate  in 
the  advantages  of  the  security  may  be,  comparatively  speaking, 
not  very  significant.  It  is  enough  that  a  material  right  may  be 
prejudiced,  and  the  party  deprived  of  the  full  advantage  of  his 
contract  and  security,  to  require  that  the  court  shall  not  interpose 
to  his  manifest  injury  ;  and  such  a  right  has  been  clearly  shown 
in  this  case."  2  It  may  be  observed,  moreover,  that  no  confirma- 
tion of  such  agreement  could  give  it  any  validity  as  against  a 
bondholder  who  did  not  himself  consent  to  it. 

388.  An  extension  of  the  time  of  payment  of  a  prior  mort- 
gage does  not  impair  the  security  of  subsequent  incumbrancers.2 
A  change  in  the  time  of  payment  of  the  interest  of  the  prior  mort- 
gage, so  long  as  the  rate  is  not  increased,  does  not  have  this  effect. 
Thus,  a  trustee  under  a  railroad  mortgage,  being  about  to  apply 
for  an  order  to  sell  the  property  under  the  mortgage,  a  receiver  in 
possession  of  the  property,  in  behalf  of  second  mortgagees,  agreed 
to  pay  the  interest  quarterly  instead  of  semi-annually,  and  thus 
obtained  an  extension  of  the  mortgage.  A  holder  of  receivers'  cer- 
tificates, which  were  by  agreement  and  order  of  court  made  a  lien 
subject  to  the  first  mortgage,  could  not  object  to  the  payment  of 
the  interest  as  agreed.3 

1  Per  Daniels,  J.,  in  Taylor  v.  Atlantic  pendente  lite.     Reinach  v.  Meyer,  55  How. 

&  Great  Western  Ry.  Co.  supra.     An  in-  (N.  Y.)  Pr.  283. 

junction  against  the  carrying  into  effect  of  2  2  Jones  on  Mortgages,  §  942. 

this  agreement  was  granted   by   another  3  In  re  United  States  Rolling  Stock  Co. 

judge  of  the    same  court,  and  continued  55  How.  (N.  Y.)  286. 

368 


SUBROGATION.  [§§  389,  390. 

III.  Payment  of  Lost  Bonds. 

389.  The  loss  of  a  bond  is  no  objection  to  the  payment  of 
it  by  the  company  that  issued  it,  provided  proper  indemnity  be 
furnished  against  its  being  enforced  in  the  hands  of  others.1  Re- 
lief is  given  in  equity.  Equity  jurisdiction  in  the  case  of  lost 
bonds  originates  in  the  doctrine  of  profert  at  common  law,  it 
being  a  rule  of  pleading  in  the  common  law  courts,  that  they 
could  give  no  remedy  for  a  debt  secured  b}*-  bond  unless  the 
creditor  offered  to  produce  his  bond  in  court.  If  the  bond  were 
lost,  profert  was  impossible,  and  the  remedy  at  law  was  gone.  A 
court  of  chancery,  however,  on  proof  that  the  bond  was  lost,  en- 
tertained jurisdiction  to  compel  its  reexecution  and  payment  of 
the  money  secured.  Now,  although  profert  is  dispensed  with  the 
equity  jurisdiction  survives.2 

Relief  for  the  loss  of  negotiable  bonds  will  only  be  given  upon 
the  condition  that  full  and  secure  indemnity  be  given  against  all 
risk.  The  difficulty  of  seeuring  full  and  complete  indemnity  to 
meet  all  the  contingencies  that  may  occur  when  the  bonds  have  a 
very  long  time  to  run,  may  be  great,  but  it  does  not  prevent  the 
granting  of  the  relief.  The  court  has  full  control  of  the  matter. 
Indemnity  should  be  furnished  upon  each  payment  of  interest,  as 
well  as  upon  the  payment  of  the  principal  sum  ;  and  then,  if  at 
any  time  before  final  payment,  it  be  made  to  appear  that  the  in- 
demnity for  past  payments  was  insufficient,  or  had  become  inse- 
cure, the  court  might  properly  make  it  a  condition  precedent  to 
the  receipt  of  further  payments  that  additional  indemnity  be  given 
in  respect  to  payments  previously  made.  With  proper  precau- 
tion all  risk  may  be  provided  against ;  and  if  the  bonds  should  be 
discovered,  or  be  presented  by  a  bond  fide  holder,  of  course,  the 
obligations  issued  in  their  place  will  cease  to  be  of  value.3 

IV.  Subrogation. 

390.  Subrogation  arises  by  operation  of  law,  as  a  general 
rule,  whenever  the  mortgage  debt  is  paid  by  one  entitled  In  re- 
deem, other  than  the  debtor.     It  is  an  equitable  right,  and   of 

1  Miller  v.  Rutland  &  Wnsliin^ton  It.  560;  and  see   Lawrence  v.   Lawrence,  49 

R.  Co.  40  Vt.  399.     See  §  219.  N.  II.  109. 

'l  NewOrlean  ,  Jack  on  6  GreatNorth-  3  Chesapeake  &  Ohio  Canal  Co.  v,  Blair, 

cm  R.  It.  Co.  v.  Miss.  College,  47  Miss.  45  Mil.  102. 

24  869 


R  391.]  PAYMENT   AND   REDEMPTION. 

course  there  is  no  chance  for  its  operation  when  there  is  a  legal 
ri«-ht  to  the  security,  such  as  exists  when  a  legal  assignment  of  the 
security  is  taken  by  the  person  paying  the  mortgage  debt.  Sub- 
rogation proceeds  upon  the  theory  that  the  mortgage  debt  has 
been  paid,  and  paid  by  one  who  has  a  right  to  redeem,  and  under 
circumstances  which  entitle  him,  as  an  equitable  assignee  of  the 
security,  to  hold  it  as  a  subsisting  charge  upon  the  property.  It 
does  not  matter  whether  the  creditor  who  pays  such  debt  does  so 
voluntarily  or  for  his  own  protection.  It  is  an  essential  condi- 
tion, however,  of  his  right  to  substitution  that  he  is  himself  under 
no  obligation  to  pay  such  debt ;  that  it  is  not  in  any  way  a  debt 
of  his  own.  This  principle  is  often  available  for  the  protection  of 
one  who  has  paid  off  an  incumbrance  upon  property  to  which  he 
erroneously  supposed  he  had  good  title,  enabling  him,  upon  the 
failure  of  his  title  to  the  equity  of  redemption,  to  hold  the  mort- 
gage title  as  an  equitable  assignee.1 

391.  Relief  can  be  had  by  one  who  has  paid  a  prior  mort- 
gage under  the  belief  that  he  had  good  title  to  the  mortgaged 
property  only  when  he  has  made  the  payment  under  a  mistake 
of  fact,  and  when  he  has  not  acted  in  bad  faith  towards  any  par- 
ties interested  in  the  property.  The  La  Crosse  and  Milwaukee 
Railroad  Company,  having  made  a  first  and  second  mortgage,  was 
sold  on  execution  at  the  suit  of  certain  creditors,  and  was  bought 
in  by  the  bondholders  secured  by  the  second  mortgage.  The  pur- 
chasers, as  they  were  authorized  to  do  by  statute,  organized  them- 
selves into  a  new  corporation,  and  worked  the  road  for  their  own 
profit.  Subsequently  the  mortgagees  under  the  senior  mortgage 
pressed  their  claim  to  a  decree  of  foreclosure,  when  the  new  cor- 
poration, in  order  to  prevent  a  sale,  paid  into  court  the  amount  of 
the  decree,  and  the  money  was  distributed  among  the  bondholders. 
A  bill  was  then  pending  against  the  new  corporation  in  behalf  of 
certain  judgment  creditors  of  the  La  Crosse  and  Milwaukee  Rail- 
road Company,  alleging  that  the  sale  under  which  the  new  cor- 
poration claimed  was  fraudulent  and  void,  and  praying  that  it 
might  be  set  aside ;  and  a  decree  was  afterwards  made  in  accord- 
ance with  the  prayer,  and  directed  that  the  property  should  be 
resold,  and  the  proceeds  applied,  after  payment  of  prior  liens,  to 
the  satisfaction  of  the  judgments  on  which  the  creditor's  bill  was 

1  See  Jones  on  Mortgages,  §§  874-885. 
370 


SUBROGATION.  [§  391. 

founded.     The  new  corporation  then  filed  a  bill  in  equity  against 
the    mortgagees   under    the  first    mortgage,  asking   to  have   the 
money  returned  to  them  on  the  ground  that  it  had  been  paid  un- 
der a  mistake  of  fact,  or  as  an  alternative  relief  to  be  subrogated 
to  the  benefit  of  the  first  mortgage ;  but  the  Supreme  Court  of 
the  United  States  held  that  the  bill  would  not  lie  for  either  form 
of  relief.1    Mr.  Justice  Bradley,  delivering  the  opinion  of  the  court, 
said :  "  The  bare  statement  of  the  claim,  even  presenting  it  in  the 
language  of  the  bill  itself,  seems  to  us  sufficient  to  condemn  it. 
Who  are  the  complainants  ?     Are  they  not  the  very  bondholders, 
self-incorporated  into  a  body  politic,  who,  through  their  trustee 
and  agent,  effected  the  sale  which  was  declared  fraudulent  and 
void,  as  against  creditors,  and  made  the  purchase  which  has  been 
set  aside  for  that  cause  ?     Was  it  ever  known  that  a  fraudulent 
purchaser  of  property,  when  deprived  of  its  possession,  could  re- 
cover for  his  repairs  or  improvements,  or  for  incumbrances  lifted 
by  him  whilst  in  possession  ?     If  such  a  case  can  be  found  in  the 
books,  we  have  not  been  referred  to  it.      Whatever  a  man  does  to 
benefit  an  estate,  under  such  circumstances,  he  does  in  his  own 
wrong.     He  cannot  get  relief  by  coming  into  a  court  of  equity. 
By  the  civil  law,  the  possessor,  even  in  bad  faith,  may  have  the 
value  of  his  improvements,  if  the  real  owner  choose  to  take  them. 
The  latter  has  an  option  to  take  them  or  to  require  their  removal. 
But  this  rule  has  never  obtained  in  the  common  law,  nor  in  the 
system  of  English  equity.     One  of  the  maxims  of  the  latter  sys- 
tem is,  '  He  that  hath  committed  iniquity  shall  not  have  equity.' 
And  various  illustrations  of  it  are  furnished  by  the  books.     But 
the  complainants  are  wrong  in  asserting  that  the  property  was  not 
theirs.     It  was  theirs.     Their  purchase  was  declared  void  only  as 
against  the  creditors  of  the  La  Crosse  and  Milwaukee  Railroad 
Company.     In  other  words,  it  was  only  voidable,  not  absolutely 
void.      By  satisfying  these  creditors  they  could   have  kept  the 
property,  and  their  title  would  have  been  good  as  against  all   the 
world.     The  property  was  theirs;  but  by  reason  of  the  fraudulent 
salt-,  was  subject  to  the  incumbrance  of  the  debts  of  the  La  Crosse 
Company.     This  was  the  legal  effect  <»f  the  decree  declaring  their 
title  void.     Therefore,  they  were,  in  fact,  paying  off  an  incum- 

1  Railroad  Company  v.  Soutter,  IS  previous  atages  of  the  litigation,  Bronson 
Wall.  r,i7.  Chief  Justice  Chase  and  Jus-  v.  La  Crosse  R.  R.  Co,  i.'  Wall.  283; 
tices  Miller  and  Field  dissenting.    Bee,  fur    James  v.  Railroad  ('<>.  6  Wall.  753. 

871 


§§  392,  393.]       PAYMENT  AND  REDEMPTION. 

brance  on  their  own  property  when  they  paid  into  court  the  money 
which  they  are  now  seeking  to  recover  back.  They  are  wrong 
also  in  asserting  that  they  made  the  payment  under  a  mistake  of 
fact.  If  it  was  made  under  any  mistake  at  all,  it  was  clearly  a 
mistake  of  law.  They  mistook  the  legal  effect  of  transactions  of 
which  they  were  chargeable  with  notice.  They  were  the  persons 
for  whose  benefit  the  purchase  was  made,  which  was  declared  to 
be  fraudulent.  They  were  the  principal  defendants  in  the  credit- 
ors' bill  upon  which  this  decree  was  rendered.  All  the  evidence 
in  that  suit  had  been  taken  when  they  made  the  payment  in  ques- 
tion. The  cause  was  pending,  on  appeal,  in  this  court.  There 
was  not  a  fact,  therefore,  of  which  they  were  ignorant.  They  had 
full  and  actual  notice  of  all  the  transactions,  and  all  the  evidence 
on  which  the  decree  was  ultimately  founded."  Moreover,  as 
against  those  who  had  in  the  mean  time  purchased  the  property, 
under  the  proceedings  had  in  favor  of  the  judgment  creditors,  there 
would  be  no  equity  in  subjecting  the  property  to  an  incumbrance 
from  which  it  was  free  when  their  purchase  was  made. 

392.  Subrogation  to  rights  of  a  state.  —  The  holders  of 
bonds  of  a  railroad  company  which  a  state  has  indorsed  under  a 
statute  giving  a  lien  upon  the  company's  property  as  security, 
may  upon  a  default  of  the  company  be  subrogated  to  the  rights 
of  the  state  in  respect  to  this  security,  and  may  in  a  suit  to  en- 
force the  lien  obtain  a  sale  of  the  property  and  application  of  the 
proceeds  to  the  payment  of  the  bonds.1 

Although  bondholders  who  have  purchased  bonds  of  a  railroad 
company  indorsed  by  a  state  may  be  subrogated  to  a  mortgage 
taken  by  the  state  for  its  security,  after  the  state  has  repudiated 
its  indorsement  as  illegal,  yet  there  can  be  no  such  subrogation 
by  one  who  has  taken  the  bonds  without  such  indorsement,  but 
issued  to  an  officer  of  the  company  as  collateral  security  for  ad- 
vances by  him.2 

393.  The  difficulty  in  the  way  of  subrogation  to  the  secu- 
rity taken  by  a  state  is  illustrated  in  a  recent  case  before  the 
Circuit  Court  of  the  United  States  for  the  Fifth  Judicial  Circuit.3 

1  Young  v.  Montgomery  &  Eufaula  R.  2  Clews  v.  Brunswick  &  Albany  R.  R. 
R.  Co.  2  Woods,  606.  Co.  54  Ga.  315. 

3  Branch  v.  Macon  &  Brunswick  R.  R. 
g™  Co.  2  Woods,  385. 


SUBROGATION.  [§  393. 

The  State  of  Georgia,  under  the  authority  of  an  act  of  the  legis- 
lature passed  in  1866,  indorsed  the  bonds  of  the  Macon  and  Bruns- 
wick Railroad  Company,  to  the  amount  of  ten  thousand  dollars 
per  mile,  upon  the  express  condition  that  such  indorsement  should 
vest  in  the  state  the  title  of  all  property  purchased  with  the  pro- 
ceeds of  said  bonds,  and  should  give  the  state  a  first  lien  on  all 
the  property  of  the  company  ;  and  that  upon  failure  of  the  com- 
pany to  pay  the  interest  or  principal  of  the  bonds,  the  governor 
should  take  possession  of  all  its  property  and  sell  the  same  for  the 
purpose  of  paying  the  bonds.  Bonds  to  the  amount  of  $1,950,000 
were  issued  and  indorsed  by  the  state  in  accordance  with  this  act. 
In  1868,  the  people  of  the  state  adopted  a  Constitution,  by  which 
it  was  provided  that  the  credit  of  the  state  should  not  be  granted 
or  loaned  to  aid  any  company,  except  under  certain  conditions. 
In  1870,  the  legislature  passed  an  act  amending  the  Act  of  1866 
above  referred  to,  so  as  to  authorize  the  governor  to  indorse  the 
bonds  of  the  company  to  the  extent  of  three  thousand  dollars  per 
mile  in  addition  to  the  ten  thousand  first  authorized.  Under  the 
latter  act  the  company  issued  bonds  which  were  indorsed  by  the 
state  to  the  amount  of  $600,000.  Two  years  afterwards  the  legis- 
lature, by  resolution,  declared  the  state's  guaranty  on  these  bonds 
binding  upon  the  state.  In  1873,  the  interest  on  the  bonds  not 
having  been  paid,  the  governor  seized  and  took  possession  of  the 
railroad  on  behalf  of  the  state,  and  appointed  an  agent  or  receiver 
to  manage  it.  In  1875,  the  legislature  passed  a  resolution,  de- 
claring the  first  issue  of  bonds  valid  and  binding  on  the  state,  but 
the  second  issue  of  $600,000  unconstitutional,  null,  and  void,  and 
also  declaring  that  the  road  ought  to  be  sold.  According^,  the 
governor  caused  the  road  to  be  advertised  for  sale,  whereupon  a 
holder  of  bonds  of  the  last  issue  filed  a  bill,  in  which  he  prayed 
for  an  injunction  to  prevent  the  sale,  and  asked  for  the  appoint- 
ment of  a  receiver  to  take  possession  of  and  sell  the  road  under 
the  direction  of  the  court  ;  but  the  court  refused  this  relief,  be- 
cause it  could  not  be  granted  without  adjudicating  the  rights  of 
the  state,  which  ought  not  to  be  done  unless  the  state  were  a 
party,  and  the  state  could  not  be  made  a  party.  Mr.  Justice 
Bradley,  delivering  the  opinion t of  the  court,  said:  "The  great 
difficulty  in  this  ease  arises  from  the  fact  that  the  surety  is  the 
State  of  Georgia,  and  that  the  state  is,  by  its  agents  and  officers, 
in  possession  of  the  property  given  by  way  of   indemnity.     In 

o  I  •> 


§  394.]  PAYMENT   AND   REDEMPTION. 

order  to  effect  the  object  of  this  bill,  the  state  must  not  only  be 
displaced  and  the  bondholders  subrogated  in  its  stead,  in  refer- 
ence to  the  property  in  question,  but  the  courts  must  dispossess 

the  state  of  the  actual  possession  of  that  property The  court 

is  called  upon,  therefore,  to  adjudicate  directly  upon  the  state's 
liability  on  the  guaranty  without  having  any  jurisdiction  over  it 
as  a  party,  and  having  decided  in  favor  of  that  liability,  it  is 
then  called  upon  to  dispose  of  the  fund  which  the  state  has  taken 
for  its  indemnity.  The  case,  therefore,  involves  a  direct  adjudi- 
cation of  the  rights  and  liabilities  of  the  state,  and  an  ultimate 
execution  of  property  in  its  possession,  the  state,  at  the  same  time, 
denying  its  liability  and  insisting  upon  its  right  to  maintain  its 
lawfully  acquired  possession.  It  seems  to  us  that  this  is  asking 
the  court  to  go  further  than  any  court  has  ever  gone  yet,  except 
where,  legislation  has  been  adopted  authorizing  the  state  to  be 
sued  in  the  same  manner  as  a  private  party.  At  all  events  the 
right  of  the  complainant  is,  to  our  view,  so  doubtful  that  we  do 
not  feel  authorized  to  exercise  the  extraordinary  powers  of  this 
court  sought  to  be  put  into  operation.  Without  attempting,  there- 
fore, to  point  out  to  the  complainant  what  other  remedy  he  has, 
except  to  rely  upon  the  good  faith  of  the  State  of  Georgia,  we 
feel  compelled  to  deny  the  motion  for  an  injunction  and  appoint- 
ment of  a  receiver." 

394.  But  there  can  be  no  subrogation  as  between  a  state 
which  has  issued  its  own  bonds  to  a  railroad  company  to  aid 
its  construction,  and  a  holder  to  whom  the  company  has  trans- 
ferred the  bonds.  The  state  is  then  the  principal  debtor,  and 
primarily  liable,  and  the  holder  of  such  bonds  cannot  on  the  prin- 
ciple of  subrogation  claim  to  have  lands  conveyed  to  the  state  as 
security  against  loss  upon  such  bonds  applied  to  the  payment  of 
the  bonds  held  by  him.  The  State  of  Minnesota  issued  its  bonds 
to  the  Southern  Minnesota  Railroad  Company,  which  transferred 
to  the  state  as  security  certain  lands  it  had  received,  as  a  grant 
in  aid  of  the  construction  of  the  road,  and  also  executed  a  first 
mortgage  of  all  its  property.  The  company  partially  graded  and 
constructed  its  road,  and  received  bonds  from  the  state,  nearly  all 
of  which,  amounting  to  half  a  million  dollars,  it  transferred  to  a 
contractor  who  had  built  the  road.  The  company  made  default 
under  its  mortgage  to  the  state,  which  foreclosed  the  mortgage,  and 
374 


REDEMPTION.  [§  395. 

purchased  the  property  at  the  sale.    Several  years  afterwards,  the 
state  transferred  to  a  new  corporation  the  property  acquired  un- 
der the  foreclosure,  together  with  the  lands  conveyed  to  it  by  the 
original  company.     The  state,  however,  directly  after  the  default 
of  the  Southern  Minnesota  Railroad  Company,  proved  recreant  to 
its  good  faith  and  honor  by  refusing  to  pay  the  interest  or  princi- 
pal of  its  bonds.     The   contractor,  after  a  delay  of  twelve  years, 
brought  a  bill  in  equity  against  the  new  corporation,  which  had 
then  completed  the  road,  seeking  to  charge  the  lands  in  its  posses- 
sion before  mentioned  with  the  payment  of  the  bonds.     The  Su- 
preme Court  of  the  United  States  decided  that  he  had  no  equity 
which  could  be  enforced,  and  that  if  he  had  had  any  such  equity, 
his  long  delay  in  presenting  the  claim  would  deprive  his  suit  of 
favorable  consideration.1     Mr.    Justice   Field  said  :    "  Whatever 
right  the  plaintiff  had  to  compel  the  application  of  the  lands  re- 
ceived by  the  state  to  the  payment  of  the  bonds  held  by  him,  it 
was  one  resting  in  equity  only.     It  was  not  a  legal  right  arising 
out  of  any  positive  law,  or  any  agreement  of  the  parties.     It  did 
not  create  any  lien  which  attached  to  and  followed  the  property. 
It  was  a  right  to  be  enforced,  if  at  all,  only  by  a  Court  of  Chan- 
cery against  the  surety.     But  the  state  being  the  surety  here,  it 
could  not  be  enforced  at  all,  and  not  being  a  specific  lien  upon 
the  property,  cannot  be   enforced   against    the   state's  grantees. 
Where  property  passes  to  the  state,  subject  to  a  specific  lien  or 
trust  created   by  law  or  contract,  such  lien  or  trust  may  be  en- 
forced by  the  courts  whenever  the  property  comes  under  their  ju- 
risdiction and  control.    Thus,  if  property  held  by  the  government, 
covered   by   a   mortgage  of  the  original  owner,  should  be  trans- 
ferred to  an   individual,  the   jurisdiction  of  the  court  to  enforce 
the  mortgage  would  attach,  as  it  existed  previous  to  the  acquisi- 
tion of  the  government.     But  where  the  property  is  not  affected 
by  any  specific  lien  or  trust,  in  the  hands  of  the  state,  her  trans- 
fer will  pass  an  unincumbered  estate." 

V.  Redemption. 
395.  It  is  not  often  that  the  subject  of    the  right  of    re- 
demption from  foreclosure  sales  under  railroad  and  other  corpo- 
rate mortgages  is  a  matter  of  litigation  in  the  courts.     Especially 
when  a  railroad  company  has  become  so  embarrassed  as  to  allow 

i  Chamberlain  v.  St.  Paul  &  Sioux  City  U.  II.  Co.  92  (J.  8.  299. 

376 


§  395.]  PAYMENT    AND   REDEMPTION. 

its  property  to  be  sold  to  satisfy  a  mortgage  upon  it,  there  is 
generally  nothing  worth  redeeming,  even  if  the  corporation,  or 
any  assignee  or  creditor  of  it,  should  be  in  condition  to  effect  a 
redemption  requiring  such  a  large  sum  of  money  as  railroad  mort- 
gages usually  represent.  There  are  general  laws  in  several  states 
al lo wing  redemption  after  foreclosure  sales,  but  they  are  not  gen- 
erally applicable  to  sales  made  by  virtue  of  powers  in  trust  mort- 
gages, such  as  railroad  mortgages  usually  are,  although  they  may 
be  applicable  to  sales  under  such  mortgages  when  they  are  enforced 
by  a  bill  in  equity.1  These  statutes  relating  to  redemption  be- 
come a  part  of  the  contract  of  mortgages  affected  by  them,  made 
while  the  statutes  are  in  force  ;  they  confer  substantial  rights,  and 
become  a  rule  of  property,  binding  upon  the  federal  courts  sit- 
ting in  equity  in  states  where  such  statutes  exist ;  and  the  fed- 
eral courts  must  conform  to  such  statutes  in  decrees  foreclosing 
mortgages  affected  by  such  rights  of  redemption.2 

But  it  seems  that  such  statutes  are  not  binding  upon  the  fed- 
eral courts  when  they  are  called  upon  to  decree  a  foreclosure  sale 
of  a  railroad  mortgage  which  covers  as  an  entirety  the  rights, 
franchises,  and  road  of  the  company  existing  in  several  states. 
This  was  the  view  taken  by  Mr.  Justice  Harlan  of  the  Supreme 
Court,  holding  a  recent  term  of  the  Circuit  Court  for  the  Seventh 
Circuit.  In  the  Indianapolis,  Bloomington,  and  Western  Railway 
case  a  final  decree  of  sale  was  rendered  in  1877.  The  sale  had 
not  taken  place  when  the  Supreme  Court  of  the  United  States  de- 
cided the  case  of  Brine  v.  Insurance  Company,  where  it  was  held, 
as  to  a  lot  of  land  in  Chicago  which  had  been  mortgaged,  that 
the  right  of  redemption  within  fifteen  months  given  by  the  Illi- 
nois statute  was  part  of  the  contract  which  the  federal  court  was 
bound  to  recognize.  In  the  Indianapolis,  Bloomington,  and  West- 
ern case  the  decree  had  directed  the  sale  of  the  railroad  prop- 
erty, rights,  and  franchises,  as  an  entirety  without  redemption, 
and  a  motion  was  made  to  correct  the  decree,  so  as  to  recognize 
the  right  of  redemption  given  by  the  statutes  of  Indiana  and  Illi- 
nois in  sales  of  real  estate.  Mr.  Justice  Harlan  decided  that  the 
redemption  statutes  of  Indiana  and  Illinois  did  not  embrace  rail- 
road mortgages  which  covered  as  an  entirety  the  property,  rights, 
and  franchises  of  a  railroad,  and  that  the  original  decree  should 

1  See    Jones    on   Mortgages,    chapters         2  Brine  v.  Insurance  Co.  96  U.  S.  627. 
xxii.,  xxix.,  xxx. 

376 


REDEMPTION.  [§§  396,  397. 

stand.  These  views,  he  held,  were  not  at  all  in  conflict  with  the 
case  of  Brine  v.  Insurance  Company,  or  with  any  decision  in  the 
Indiana  and  Illinois  Supreme  Courts.1 

396.  A  vested  right  to  redeem  under  the  general  law  can- 
not be  destroyed  or  impaired  by  a  special  statute  enacting  that 
the  mortgage  has  been  foreclosed,  or  that  it  shall  be  foreclosed  in 
case  the  debt  be  not  paid  within  one  year  from  the  passage  of  the 
act.2 

397.  In  New  York  3  it  is  provided  by  statute  that  whenever 
default  shall  be  made  by  any  railroad  or  plank  road  company  in 
the  payment  of  principal  or  interest  of  any  bonds  of  such  com- 
pany, which  are  secured  by  a  mortgage  of  the  property  of  such 
company,  it  shall  be  lawful  for  each  and  every  stockholder  of  said 
company,  at  any  time  during  the  process  of  such  foreclosure,  to 
pay  to  the  mortgagees  named  in  such  mortgage,  for  the  use  and 
benefit  of  the  holder  and  holders  of  such  bonds,  such  a  proportion 
of  the  sum  clue  and  of  the  sum  secured  to  be  paid  by  the  whole  of 
the  bonds  secured  by  such  mortgage,  as  such  stockholder's  stock 
shall  bear  to  the  whole  stock  of  said  company;  and  on  so  paving 
such  stockholder  shall,  to  the  extent  of  such  payment,  become  and 
be  interested  in  said  mortgage  and  protected  thereby. 

In  case  of  the  foreclosure  of  any  mortgage  given  by  any  railroad 
or  plank  road  company  to  secure  the  payment  of  any  bond  of  such 
company,  any  stockholder  of  such  company  shall,  for  the  period  of 
six  months  after  the  sale  under  such  foreclosure,  have  the  right,  on 
paying  to  the  purchaser  or  purchasers  at  or  under  such  sale,  or  to 
the  mortgagees  in  such  mortgage,  for  the  use  and  benefit  of  said 
purchaser  or  purchasers  a  sum  equal  to  such  proportion  of  the 
price  paid  on  such  sale,  and  the  costs  and  expenses  thereof,  as 
such  stockholder's  stock  in  said  company  shall  bear  to  the  whole 
capital  stock  of  said  company ;  and  on  so  paying  such  stockholder 
shall  be  entitled  to  have  the  same  relative  amount  of  stock  or  in- 
terest in  said  rail  road  or  plank  road  company,  and  its  road,  fran- 
chises, and  other  property.4     It  shall  be  lawful  for  any  mortgagee 

1  Boston     Daily    Advertiser,    October         8  2  R.  S.  1875,  p.  553,  §  108.     Original 
9th,  1S78.    Judges  Drummond  ami  lilud-     Act,  Laws  1853,  c.  502. 

gett  concurn.l.  *  2  B.  S.  1875,  p.  553,  §§  109,  110. 

2  Ashuelot  H.  H.  Co.  v.  Elliot,  52  N.  II. 
387. 

377 


R  397.1  PAYMENT    AND   REDEMPTION. 

of  any  railroad  and  the  franchises  thereof  to  become  the  purchaser 
of  the  same,  at  any  sale  thereof  under  the  mortgage,  upon  fore- 
closure by  advertisement,  or  under  a  judgment  or  decree,  or  oth- 
erwise, and  to  hold  and  convey  the  same,  with  all  the  rights  and 
privileges  belonging  thereto  or  connected  therewith.1 
i  2  R.  S.  1S75,  p.  553 ;  Laws  1857,  c.  444,  §  1. 

378 


CHAPTER  XIII. 


REMEDIES    AND    JURISDICTION    OF    COURTS    FOR    ENFORCEMENT 
OF    CORPORATE    SECURITIES. 


I.  The  several  remedies  to  enforce  cor- 
porate securities  are  cumulative,  398- 
405. 

II.  Jurisdiction  of  state  and  federal 
courts  of  suits  against  corporations, 
406-414. 

III.  Effect   of   consolidation    of   railroad 


corporations  upon   the   jurisdiction  of 
suits  against  them,  415-420. 

IV.  In  cases  of  concurrent  jurisdiction 
the  court  which  first  assumes  jurisdic- 
tion retains  it,  421,  422. 

V.  Sale  of  franchise  or  property  of  rail- 
road company  on  execution,  423-430. 


I.     The    Several   Remedies  to  enforce   Corporate   Securities   are 

Cumulative. 

398.  General  Statement.  —  Although  for  the  reasons  stated 
mortgages  by  railroad  companies,  and  other  corporations  having 
property  of  great  value  widely  scattered,  are  almost  -always  fore- 
closed by  suits  in  equity,  yet  other  methods  of  foreclosure  are  not 
wholly  disused.  Thus,  in  Massachusetts,  such  mortgages  have 
been  foreclosed  by  writ  of  entry  and  possession  ; l  and  in  Maine 
by  notice  and  possession  in  the  manner  used  for  the  foreclosure 
of  ordinary  mortgages.2 

The  general  rule,  that  the  several  remedies  upon  a  mortgage 
by  suits  at  law  and  in  equity,  and  by  entry  and  possession,  may  be 
used  together  or  successively,3  is  applicable  to  mortgages  by  rail- 
way companies. 

A  holder  of  bonds  issued  by  a  railroad  company  and  guaran- 
teed by  the  trustees  of  an  internal  improvement  fund  acting  in 
behalf  of  a  state,  and  having  a  statutory  lien  upon  the  railroad  as 
security,  on  the  default  of  the  company,  has  three  remedies :  first, 
upon  the  personal  liability  of  the  company;  second,  upon  the 
guaranty  of  the  internal  improvement  fund  ;  and,  third,  upon  the 


1   I  f:iv<  ii  v.  Grand  .Junction  R.  R.  &  De- 
pot Co.  12  Allen  (Mass.),  337. 


2  Kennebec  &    Portland    R.   R.   Co.  v. 
Portland  &  Kennebec  R.  R.  Co.  59  Me.  9. 
a  2  Joins  on  Mortgages,  §  1215. 
879 


§  399.]  REMEDIES   AND   JURISDICTION    OF   COURTS. 

statutory  lien  on  the  railroad.  He  cannot  avail  himself  of  the 
latter  directly,  as  he  could  if  it  were  a  mortgage  given  to  secure 
the  bonds  alone ;  but  he  must  induce  the  trustees  to  act  in  the 
mode  pointed  out  by  the  statute ;  or  compel  them  to  act  by  man- 
damus ;  or  he  may  seek  relief  by  a  bill  in  equity.1 

399.  Although  a  mortgage  itself  provides  no  remedy  other 
than  a  power  of  sale,  the  jurisdiction  of  a  court  of  chancery  to 
enforce  it  is  not  ousted.  The  power  of  sale  is  only  a  cumulative 
remedy.2  Although  a  mortgage  provides  several  remedies,  as  for 
instance  that  the  mortgagee  may,  upon  default,  take  possession 
and  apply  the  income  of  the  property  to  the  payment  of  the  debt 
secured,  or  may  sell  the  property  under  a  power,  or  may  enforce 
payment  of  the  debt  by  suit  at  law,  or  may  enforce  the  security 
by  proceedings  in  equity,  the  mortgagee  is  not  confined  to  any 
particular  order  of  priority  in  resorting  to  one  or  all  of  the  rem- 
edies conferred  by  the  mortgage.3 

Whether  a  provision  in  a  mortgage  making  a  sale  by  the  trus- 
tees under  the  power  given  them,  exclusive  of  all  other  methods 
of  sale,  would  exclude  a  resort  to  proceedings  in  equity  by  bond- 
holders for  that  purpose,  is  perhaps  an  undecided  question  ;  but 
a  suit  at  law  upon  overdue  coupons  has  been  sustained,4  although 
the  mortgage  securing  them  prescribed  that  in  case  the  coupons 
were  not  paid  when  due,  the  trustees,  at  the  request  of  one  fourth 
of  the  bondholders,  should  enter  into  possession  of  the  railroad, 
and  sell  it  for  the  benefit  of  the  creditors  ;  "  it  being  further  ex- 
pressly understood  and  agreed  (any  law  or  usage  to  the  contrary 
notwithstanding)  that  neither  the  whole  nor  any  part  of  the 
property  ....  shall  be  sold  under  proceedings  either  at  law  or 
in  equity  for  the  recovery  ....  by  the  holder  or  holders  of  the 
bonds  ....  of  the  whole  or  any  portion  of  the  principal  or  in- 
terest of  the  said  bonds,  it  being  the  intention  and  agreement  of 
the  parties,  for  the  better  securing  of  the  largest  possible  price, 
....  that  the  method  of  sale  hereinbefore  provided  shall  be  ex- 
clusive of  all  others." 

In  Pennsylvania  the  courts  formerly  had  no  general  jurisdiction 

1  State  of  Florida  v.  Anderson,  91  U.         3  McAllister  v.  Plant,  54  Miss.  106. 

S.  667.  4  Widener  v.  R.  E.  Co.  1  Weekly  Notes 

2  Jones  on  Mortgages,  §  177  ;  Eaton  &     of  Cases,  472. 
Hamilton  R.  R.  Co.  v.  Hunt,  20  Ind.  457. 

380 


REMEDIES   ARE   CUMULATIVE.  [§§  400,  401. 

in  equity,  and  therefore,  until  a  recent  statute  *  gave  such  jurisdic- 
tion in  cases  of  corporation  mortgages,  there  could  be  no  decree 
for  the  sale  of  mortgaged  property  at  the  instance  of  the  mort- 
gagee.2 A  power  of  sale  in  such  a  mortgage  might  be  executed 
according  to  the  terms  of  the  appointment ;  but  the  court  could 
not  direct  the  execution  of  it  except  at  the  suit  of  a  party  standing 
in  the  relation  of  cestui  que  trust,  and  for  the  purpose  of  adminis- 
tering the  trust.3  Now  the  Supreme  Court  may  decree  a  sale  un- 
der a  railroad  mortgage,  and  the  act  giving  the  court  jurisdiction 
in  such  case  applies  to  mortgages  made  before  its  passage,  as  it 
merely  provides  a  new  remedy  for  a  breach  of  contract.4  When 
the  mortgage  creates  a  trust,  and  provides  that  a  power  of  sale 
may  be  executed  by  the  trustee  on  certain  contingencies,  the  court 
may  in  equity  control  and  regulate  the  exercise  of  the  power  at 
the  suit  of  a  cestui  que  trust ;  and  when  it  has  once  decided  that 
the  contingency  has  arisen  to  give  it  jurisdiction,  its  decision  can- 
not be  impeached  collaterally.5 

400.  Suit  at  law  upon  the  bonds.  —  The  fact  that  a  railroad 
mortgage  empowers  the  trustees,  upon  the  written  request  of  not 
less  than  $100,000  in  amount  of  the  bonds  secured,  after  breach 
of  the  condition,  to  sell  the  property,  is  no  defence  to  a  suit  at 
law  upon  the  bonds  after  a  breach  of  the  condition.  The  bonds 
are  the  principal  debt,  and  the  mortgage  is  only  an  incidental 
security.  The  remedies  at  law  and  in  equity  do  not  clash  and 
destroy  each  other,  but  exist  together.6 

401.  Recovery  of  possession.  — A  court  of  equity  has  juris- 
diction to  order  a  specific  performance  of  a  stipulation  in  a  railroad 
mortgage,  authorizing  the  trustees  to  take  possession  of  the  mort- 
gaged property  for  the  non-payment  of  the  bonds  secured,  and  a 
bill  in  equity  is  the  projjer  form  of  proceeding  to  compel  the  com- 
pany and  its  agents  to  deliver  possession  to  the  trustees.7     When 

1  April  11,1862,1  Brightly's  Purdon's  c  Youngman  v.  Elmira  &  Williamsport 

Dig.  593.  R.  R.  Co.  G5  Pa.  St.  278. 

-  A  ihhurst  v.  Montour  Iron  Co.  35  Pa.  °  Philadelphia  &  Baltimore  Central  K. 

8t.30.  B.  Co.  v.  Johnson,  54  Pa.  St.  127.     The 

8  Bradley  &  Chester  Valley  R.  II.  Co.  action  in  this  case  was   upon  six  bonds 

36  Pa.  St.  141.  amounting  together  to  H,400. 

4  McElrath  i;.  Pittsburg  &  Steubenville  7  Shepley  v.  Atlantic  &  St.   Lawrence 

R.  R.  Co.  55  Pa.  St.  189 ;  McCurdy's  Ap-  It.  R.  Co.  55  Me.  395  ;   Shaw  v   Norfolk 

peal,  05  Pa.  St.  290.  County  It.  R.  Co.  5  Gray  (Mass.),  102. 

;;si 


§  401.]  REMEDIES   AND  JURISDICTION   OF   COURTS. 

foreclosure  is  sought  by  a  bill  in  equity,  delivery  of  possession  to 
the  trustees  or  to  a  receiver  is  obtained  by  the  same  bill ;  and  a 
separate  bill  for  this  purpose  is  necessary  only  when  foreclosure  is 
Bought  by  some  other  method,  such  as  a  power  of  sale,  or  by  entry 
and  possession. 

Liens  are  enforcible  in  equity  only,  unless  the  law  has  provided 
for  another  mode.  This  is  true  of  vendors'  liens,  equitable  and 
other  mortgages,  and  all  statutory  liens,  except  in  all  cases  where 
the  lien  is  in  the  nature  of  a  pledge,  and  possession  accompanies 
the  lien.  A  court  of  law  does  not  possess  the  means  of  enforcing 
such  liens.1 

A  power  in  a  mortgage  authorizing  the  mortgagee,  upon  de- 
fault of  payment,  to  take  possession  of  the  railroad  and  the  prop- 
erty connected  therewith,  and  use  or  sell  the  same,  must  be  ex- 
ercised upon  all  the  property  mortgaged  as  an  entire  thing  ;  and 
it  does  not  authorize  the  mortgagee  to  take  possession  of  particular 
portions  of  the  property,  leaving  the  residue  in  the  possession  of 
the  corporation.  If  this  could  be  done  the  road  might  be  rendered 
useless  to  both  creditors  and  stockholders ;  and  what  is  of  greater 
importance,  neither  the  mortgagee  nor  the  corporation  would  be 
able  to  discharge  the  public  obligation  to  use  the  road  as  a  high- 
way for  which  the  charter  of  the  company  was  granted.  There- 
fore the  mortgagees  of  a  railroad  have  no  authority,  before  taking 
possession  of  the  entire  property,  to  replevy  a  portion  of  the  mort- 
gaged property  from  an  officer  who  has  levied  an  execution  upon 
it.2 

The  mortgagee  in  such  case  stands  upon  no  higher  ground  in 
respect  to  an  officer  who  has  legally  levied  an  execution  upon  the 
property  than  the  corporation  itself.  The  mortgagee  must  either 
take  possession  of  the  whole  property,  or  obtain  an  injunction 
against  the  sale  and  removal  of  the  property  levied  upon.  But 
when  the  mortgage  debt  exceeds  the  value  of  the  property  covered 
by  the  mortgage,  the  whole  equitable  interest  in  the  property  is  in 
the  mortgagee,  and  consequently  a  creditor  acquires  no  substantial 
interest  by  a  levy  upon  a  portion  of  the  property  ;  and  in  such 
case,  although  the  mortgagee  has  in  vindication  of  his  rights  re- 
covered in  replevin  the  property  levied  upon,  yet  the  creditor  is 
entitled  only  to  nominal  damages.3 

1  Cairo  &  Vincenncs  R.  R.  Co.  y.Fack-        2  Coe  v.  Peacock,  14  Ohio  St.  187. 
ney,  78  111.  116.  8  Coe  v  Peacock,  supra. 

382 


REMEDIES  ARE   CUMULATIVE.  [§§  402,  403. 

402.  A  threatened  injury  to  mortgaged  property  may  be 
restrained  by  injunction.  Thus,  the  receivers  of  a  railway  ap- 
pointed in  a  suit  for  the  foreclosure  of  a  mortgage  upon  it  were 
allowed  this  relief  against  another  railway  company,  which  threat- 
ened to  lay  their  track  on  a  part  of  the  mortgaged  premises,  and 
thereby  inflict  a  serious  damage,  without  allowing  compensation, 
although  they  claimed  the  right  to  do  so  by  virtue  of  an  agree- 
ment made  with  the  mortgagors  or  their  grantees.  The  agree- 
ment, however,  was  made  subsequently  to  the  mortgage,  and 
therefore  could  not  affect  the  rights  of  the  mortgagees  under  it.1 

The  possession  of  mortgage  bonds,  and  their  production  in  the 
cause,  is  sufficient  to  give  the  holder  a  standing  in  court  and  en- 
title him  to  relief  by  injunction  against  the  interference  with  the 
mortgage  property  by  a  judgment  creditor.  It  is  no  valid  objec- 
tion that  he  has  pledged  some  of  the  bonds  to  other  persons  as 
collateral  security,  for  he  has  not  thereby  lost  his  title  as  owner. 
Being  a  bondholder  entitled  to  priority  over  a  judgment  creditor 
he  is  entitled,  in  the  absence  of  any  action  by  the  mortgage  trus- 
tees, to  maintain  for  himself  and  all  other  bondholders  a  suit  to 
restrain  such  judgment  creditor  from  enforcing  his  execution.2 

The  owner  of  bonds  secured  by  a  lien  upon  the  lands  of  a  rail- 
road company  may  bring  a  suit  to  enjoin  another  corporation 
from  obtaining  such  lands  by  the  wrongful  use  of  the  name  of  the 
corporation  whose  bonds  he  holds.  It  should  first  appear,  however, 
that  the  company  had  refused  to  take  proper  measures  to  protect 
its  corporate  rights.3 

403.  A  general  creditor  of  a  corporation  cannot  obtain  an 
injunction  against  its  executing  a  mortgage  of  its  property. 
If  the  claim  be  a  lien  upon  the  property,  in  the  form  of  an  attach- 
ment, judgment,  execution,  or  otherwise,  this  will  not  be  affected 
by  a  subsequent  mortgage  ;  and  if  it  be  not  a  lien  by  reason  that 
the  company  is  a  foreign  corporation,  and  is  beyond  the  jurisdic- 
tion of  the  court,  the  mortgage,  if  executed,  will  not  obstruct  or 
prejudice  the  creditor's  rights,  because  he  has  in  such  ease  no 
ground  of  preference  over  other  creditors  either  as  :i  judgment  or 
attaching  creditor,  or  upon  the  ground  of  the  insolvency  "I'  the 

i  Coe  r.  X.  J.  Midland  Ry.  Co.  28  N.J.  n  Newby  v.  Oregon  Cent.  Ry.  Co.  1 
Eq.  27.  Sawyer,  03. 

2  Butler  .-.  Ranm,  46  M.I.  541. 

883 


§§401,405.]       REMEDIES  AND  JURISDICTION   OF   COURTS. 

corporation.  Even  if  the  court  had  jurisdiction  of  the  property 
without  such  lien,  it  would  be  authorized  to  interfere  by  injunc- 
tion only  in  an  action  by  all  the  creditors,  or  for  the  benefit  of  all 
the  creditors.1 

404.  A  railroad  company  has  no  right  as  against  its  mort- 
gagee to  take  up  any  part  of  the  mortgaged  road,  and  it  may 
be  enjoined  from  doing  so,  although  that  portion  of  the  road 
which  it  is  taking  up  is  not  self-sustaining,  but  an  expense  to  the 
company  ;  or  although  it  would  be  an  injury  and  loss  to  the  com- 
pany to  permit  the  rails  to  remain  on  the  street  and  be  destroyed  ; 
or  although  the  mortgagee  has  ample  security  left  for  the  bonds 
he  claims,  and  the  company  is  willing  to  appropriate  the  proceeds 
of  the  sale  of  the  rails  taken  up  in  liquidation  of  the  mortgage. 
The  company,  by  giving  the  mortgage,  has  parted  with  the  right 
to  decide  the  question  of  the  expediency  of  giving  up  a  part  of 
its  road.  It  has  no  right  to  touch  the  road  except  in  the  ordi- 
nary use  and  proper  repair  of  it.  The  mortgagee  has  the  right  to 
hold  all  the  property  mortgaged  until  he  is  fully  satisfied.  His 
rights  cannot  be  preserved  if  the  mortgagor  has  the  right  to  de- 
stroy the  security  by  inches.  Full  effect  can  be  given  to  the  con- 
tract of  the  parties  only  by  preserving  the  whole  property  intact.2 

405.  A  state  cannot  be  sued  except  in  cases  where  it  has 
authorized  the  bringing  of  suits  against  it.  But  the  mere  fact 
that  a  state  officer,  whatever  may  be  his  grade,  is  a  party,  does  not 
necessarily  defeat  the  jurisdiction  of  the  court,  although  the  state 
may  be  the  real  party  in  interest,  and  cannot  as  such  be  brought 
before  the  court.  Thus,  when  the  governor  and  attorney  general 
of  a  state,  under  the  authority  of  an  act  of  the  legislature,  pro- 
ceed to  sell  a  railroad  and  its  franchises  in  satisfaction  of  a  statu- 
tory lien  claimed  in  behalf  of  the  state,  these  officers  do  not  act  in 
their  political  or  executive  capacity,  but  simply  as  agents,  in  obe- 
dience to  the  power  committed  to  them  by  the  legislative  act, 
which  might  have  conferred  the  same  power  upon  any  other  per- 
son as  well.3 

1  Rogers  v.  Mich.  South.  &  N.  Ind.  R.     mount  Passenger  R.  R.  Co.  1  Brew.  (Pa  ) 
R.  Co.  28  Barb.  (N.  Y.)  539.  418  ;  S.  C.  6  Phila.  386. 

2  Watt  i\  Hestonville,  Mantua  &   Fair-         s  Murdoch   v.  Woodson,   2    Dill.    188. 

See  State  v.  McKay,  43  Mo.  594,  599. 
384 


JURISDICTION   OF   STATE   AND   FEDERAL   COURTS.         [§  406. 


II.  Jurisdiction  of  State    and    Federal  Courts  of  Suits  against 

Corporations. 

406.  A  corporation  is  not  amenable  to  process,  except  in 
the  state  in  which  it  is  established,  and  in  which  its  corporate 
functions  are  exercised.  It  has  no  legal  existence  in  any  other 
state.1  This  rule  applies  not  only  to  state  courts,  but  also  to  the 
United  States  courts.  Thus,  Mr.  Justice  McLean,  of  the  Supreme 
Court  of  the  United  States,  in  a  case  before  him,  as  judge  of 
the  Circuit  Court  sitting  in  Indiana,  in  which  an  injunction  was 
asked  for  against  the  Michigan  Central  Railroad,  a  corporation 
of  the  State  of  Michigan,  which  had  constructed  a  part  of  its  road 
in  the  State  of  Indiana,  said : 2  "  I  know  of  no  process  which  can 
reach  a  corporation  of  Michigan  from  the  Circuit  Court  sitting 
in  Indiana.  It  is  amenable  to  no  process  out  of  the  state.  The 
Circuit  Court  of  the  United  States,  sitting  in  a  state,  has  no  juris- 
diction beyond  the  limits  of  the  state,  except  in  criminal  cases. 
Subpoenas  may  be  issued  for  witnesses  throughout  the  United 
States.  In  every  other  particular,  the  federal  court  acting  in  a 
state  is  as  limited  in  its  jurisdiction  as  any  state  court  whose 
jurisdiction  extends  throughout  the  state." 

The  service  of  process  upon  the  treasurer  or  other  officer  of  a 
foreign  corporation,  although  the  corporation  has  an  office  and 
place  of  business  within  the  state,  does  not  give  the  courts  juris- 
diction. An  attachment  of  the  property  of  a  foreign  corporation 
would,  in  Massachusetts  and  some  other  states,  have  this  effect ; 
jurisdiction  may  also  be  given  by  express  statute  ; 3  and  accord- 
ingly in  several  states  suits  against  foreign  corporations  having 
agents  within  the  state  conducting  the  general  business  for  which 
the  corporations  were  organized  may  be  commenced  by  service  of 
process  upon  such  agents.  But  generally  a  corporation  which  does 
not  exercise  it3  corporate  franchises  in  a  foreign  state,  and  which 

1  Bank  of  Augusta  v.  Earle,  l.'i  Peters,  stone  Canal  Corp.  l    Sumner,  46;  Clevc- 

519,588;  .Mar-hall   u.Baltimore  &  Ohio  land  &  Pittsburg  K.  II.  Co.  v.  Speer,  56 

R.  I:.  Co.   16  Bow.   314,  328;  Lafayette  J'a.  St.  325. 

Ihb.  Co.  v.   French,   18  [b.   404;  Ohio  &  a  Northern  Indiana  R.  B.  Co.  v.  Michi- 

Miss.  B    R.  Co   v.  Wheeler,  1  Black,  286,  gan  Cent.  B.  B.  Co.  5  McLean,  444. 

297  ;  Lathrop  o.  I  nion  Pai  ific  Ry.  <  !o.  l  3  Andrews  v.  Michigan  Cent.  It.  It.  Co. 

MaeArlliur(I).  C .),234  ;  Farnumv.  Black-  99  Ma  B.  534 

-'■•  385 


§§  407,  408.]       REMEDIES   AND  JURISDICTION   OF   COURTS. 

has  no  business  agency  established  there,  cannot  be  sued  in  its 
courts.1 

Jurisdiction  of  a  suit  against  a  non-resident  corporation  cannot 
be  taken  upon  the  ground  that  the  defendant  corporation  has 
property  within  the  state,  when  that  property  is  only  the  unissued 
bonds  of  the  company  in  the  hands  of  its  agents  for  sale.  Such 
bonds  are  not  property  within  the  legal  signification  of  the  term.2 

407.  A  corporation  is  foreign  to  any  state  only  when  it 
owes  its  corporate  existence  in  no  part  to  the  legislation  of 
that  state.  A  corporation  is  domestic  in  any  state  in  which  cor- 
porate powers  and  franchises  have  been  conferred  upon  it,  or  upon 
an  original  corporation  which  has  been  united  in  the  new  one  by 
consolidation.  It  may  have  a  corporate  entity  in  each  of  two  or 
more  states,  and  be  both  foreign  and  domestic  in  each.  In  a  suit 
by  or  against  such  consolidated  corporation,  it  must  be  treated  as 
domestic  in  each  of  the  states  under  whose  laws  it  is  established 
as  a  corporation.3  But  a  railroad  company  incorporated  under 
the  laws  of  one  state,  and  operating  its  road  in  another  state  by 
the  assent  of  the  legislature  of  the  latter,  is  liable  to  process  in 
that  state  as  a  domestic  corporation.4 

Yet  a  foreign  corporation,  upon  which  the  legislature  of  another 
state  has  conferred  the  power  to  purchase  and  hold  lands  in  that 
state,  does  not  by  reason  of  such  legislation  acquire  a  domestic 
character.  It  can  properly  be  said  to  exist  only  in  the  state  that 
created  it.5 

An  averment  that  a  company  is  a  corporation  under  and  by  the 
laws  of  a  certain  state  is  a  sufficient  averment  that  it  is  a  citizen 
of  that  state.8 

408.  It  is  competent,  however,  to  provide  by  legislation 
that  a  foreign  corporation  having  an  agency  in  a  state  for  the 

1  Lathrop  v.  Union  Pacific  Ry.  Co.  1  Wheeler,  1  Black,  286  ;  People  v.  Lake 
MacArthur  (D.  C),  234.  Shore  &  Mich.  South.  R.  R.  Co.  11   Hun 

2  Barnes  v.   Mobile  &  North  Western     (N.  Y.),  1. 

R.  R.  Co.  5  N.  Y.  "Weekly  Dig.  191 ;  Cod-  *  Pennsylvania  R.  R.   Co.   v.  People, 

dington  v.  Gilbert,  17  N.  Y.  489.  Sup.  Ct.  of  Ohio,  Dec.  T.  1877,  6  Cent. 

8  Sprague  v.   Hartford,  Providence   &  L.  J.  436. 

Fishkill  R.  R.  Co.  5  R.  I.  233  ;  McGregor  5  State  v.    Delaware,   Lackawanna    & 

v.  Erie  Ry.  Co.  35  N.  J.  L.  115;    Mary-  Western  R.  R.  Co.  30  N.  J.  L.  473. 

land    v.   Northern    Central    Ry.    Co.   18  6  Keep  v.  Mich.  Lake  Shore  R.  R.  Co. 

Md.   194;    Ohio   &  Miss.   R.  R.   Co.  v.  6  Chicago  L.  News,  101. 
386 


JURISDICTION   OF   STATE   AND   FEDERAL   COURTS.         [§  409. 

transaction  of  business,  or  making  contracts  there,  may  be  held  to 
answer  suits  in  such  state  commenced  by  the  service  of  process 
upon  the  president,  secretary,  treasurer,  or  other  agent  of  the 
corporation  within  the  state.  Thus  a  railroad  company  incor- 
porated in  Virginia  borrowed  money  in  New  York  through  the 
agency  of  its  treasurer,  an  and  action  was  commenced,  in  accord- 
ance with  a  statute,  against  the  company  in  a  court  of  the  latter 
state,  by  service  of  process  upon  its  secretary,  who  was  found  in 
the  state,  and  judgment  rendered.  Upon  a  transcript  of  this  judg- 
ment suit  was  brought  against  the  corporation  in  the  District  of 
Columbia,  where  it  had  an  office ;  and  it  was  held  that  the  corpo- 
ration having  contracted  the  debt  in  New  York,  its  court  obtained 
complete  jurisdiction  bj^  the  service  made  in  the  suit,  and  that  the 
judgment  was  entitled  to  the  same  conclusiveness  elsewhere  that 
it  had  in  the  state  where  it  was  rendered.1 

409.  Citizenship  of  corporations.  —  For  the  purposes  of  fed- 
eral jurisdiction  a  corporation  is  conclusively  considered  as  if  it 
were  a  citizen  of  the  state  which  ci'eated  it.  In  the  case  of  a  com- 
pany organized  under  the  laws  of  one  state,  and  afterwards  ex- 
tending its  line  of  road  into  another  state,  under  whose  laws  the 
company  is  licensed  to  act,  but  is  not  re-incorporated,  the  com- 
pany remains  a  citizen  of  the  state  in  which  it  was  originally  or- 
ganized.2 Without  the  sanction  of  the  legislature  a  domestic  cor- 
poration lias  no  power  to  sell  out  to  another  company  all  or  a  part 
of  its  road  and  franchise ;  and  a  foreign  company  without  such 
sanction  would  have  no  authority  to  purchase  or  operate  the  road 
of  a  domestic  corporation.  Legislation  of  a  state  designed  to  en- 
courage the  building  of  railroads  and  to  facilitate  the  making  of 
continuous  or  connected  lines,  by  authorizing,  so  far  as  possible, 
its  own  companies  to  extend  their  roads  into  other  states,  and  by 
conferring  upon  the  companies  of  other  states  the  right  to  lease 
or  to  buy,  and  to  build  and  operate  roads  within  its  limits,  does 
not  ordinarily  constitute  new  corporations  of  such  foreign  corpo- 
rations as  may  take  the  benefit  of   such  legislation,  but  simply 

1  Weymouth  v.   Washington,   George-  ville,  Cincinnati  &  Charleston  R.  R.  Co.  v. 

town    &  Alexandria  B.    B.   Co.    1    -Mac-  Leteon,  2   How.    197 ;    Marshall  u.  Balti- 

Arthur  (D.  C.),  19.  more  &  Ohio  B.  R.  Co.  16  [b.  814;    New 

>  Mailer  <•   Dowb,  94    Q.  8. 444;    Bail-  York  ft   Erie   B.    K.   Co.   v.  Bhepard,  5 

■  v.  Harris,  12  Wall.  65;   Bailway  McLean,  455;   McElrath  v.  Pittsburg  ft 

Co.  v.  Whitton,  13  Wall.  270,  2-:.;  Louis-  Steubenville  B.  B  Co  55  Pa,  St.  L89. 

887 


§  410.]  REMEDIES   AND   JURISDICTION  OF   COURTS. 

gives  them,  on  the  conditions  stated,  certain  specified  rights,  pow- 
ers, and  immunities.1 

This  doctrine  of  the  citizenship  of  corporations  is  based  upon 
the  presumption  which  cannot  be  contradicted,  that  the  individual 
members  of  a  corporation  having  a  legal  existence  in  a  state  are 
citizens  of  that  state.2  Prior  to  1844,  it  was  held  necessary  to 
aver  that  the  corporators  were  citizens  of  the  state  ;  but  the  Su- 
preme Court  of  the  United  States  then  reexamined  the  subject  of 
the  jurisdiction  of  the  federal  courts,  and  held  that  a  corporation 
created  by  the  laws  of  a  state,  and  having  its  place  of  business 
within  that  state,  must,  for  the  purj)ose  of  suit,  be  regarded  as  a 
citizen  within  the  meaning  of  the  Constitution  giving  jurisdiction 
founded  upon  citizenship.3  It  is  now  the  settled  construction 
that  an  allegation,  that  a  defendant  corporation  was  incorporated 
by  a  state  other  than  that  of  which  the  plaintiff  is  a  citizen,  is  a 
sufficient  averment  of  jurisdiction. 

The  stockholders  of  a  corporation  are  conclusively  presumed  to 
be  citizens  of  the  state  which  created  it,  for  the  purposes  of  a  suit 
by  or  against  it  in  a  court  of  the  United  States.  A  corporation 
itself  is  not  a  citizen,  and  therefore  the  bill  should  allege  the  fact 
of  incorporation,  and  incorporation  by  a  state  whereof  the  adverse 
party  is  not  a  citizen  ;  but  a  defective  averment  of  citizenship 
may  be  cured  by  subsequent  pleadings.4 

410.  The  federal  courts  have  jurisdiction  of  suits  against 
counties  and  municipalities  under  the  same  conditions  that  it 
has  jurisdiction  of  private  corporations.  It  has  been  objected  as 
regards  counties  that  they  are  only  quasi  corporations,  and  really 
only  subordinate  political  divisions  of  a  state,  and  not  citizens 
within  the  meaning  of  the  Constitution  or  acts  of  Congress.  In  a 
suit  upon  bonds  in  aid  of  a  railway  in  the  Circuit  Court  of  the 
United  States   against  Washington   County,  Pennsylvania,5  Mr. 

1  Williams  v.  Mo.,  Kansas  &  Texas  Ry.         3  Louisville,   Cincinnati   &    Charleston 
Co.  3  Dill.  267,  where  Judge  Dillon  states     R.  R.  Co.  v.  Letson,  2  How.  497. 

the  law  and  examines  the  authorities.  *  Muller  v.  Dows,  94  U.  S.  444  ;    La- 

2  Ohio  &  Miss.  R.  R.  Co.  ?;.  Wheeler,     fayette  Ins.  Co.  v.  French,  18  How.  404. 

1   Black,    286;    National    Park    Bank   of  5  McCoy  v.  Washington  County,  7  Am. 

N.  Y.  i'.  Nichols,  4  Biss.  315;    Hatch  v.  Law  Reg.  193.     See,  also,  to  same  effect, 

Chicago,  Rock  Island  &  Pacific  R.  R.  Co.  Lyell  v.  Supervisors  of  Lapeer  County,  6 

6  Blatchf.  105;    Hobbs  v.  Manhattan  Ins.  McLean,  446;  Cowles  v.  Mercer  County, 

Co.  56  Me.  417.  7  Wall.  118 ;  McPike  v.  Lincoln  County, 

388  C.  C.  U.  S.  E.  D.  of  Mo.  7  Cent.  L.  J.  264. 


JURISDICTION   OF   STATE   AND   FEDERAL   COURTS.         [§  411. 

Justice  Grier,  in  answer  to  this  objection,  said  :  "  Though  the  met- 
aphysical entity  called  a  corporation  may  not  be  physically  a  cit- 
izen, yet  the  law  is  well  settled  that  it  may  sue  and  be  sued  in 
the  courts  of  the  United  States,  because  it  is  but  the  name  under 
which  a  number  of  persons,  corporators  and  citizens,  may  sue  and 
be  sued.  In  deciding  the  question  of  jurisdiction,  the  courts  look 
behind  the  name  to  find  who  are  the  real  parties  in  interest.  In 
this  case  the  parties  to  be  bound  by  the  judgment  are  the  people 
of  Washington  County.  That  defendant  is  a  municipal  corpora- 
tion, and  not  a  private  one,  only  furnishes  a  stronger  reason  why 
a  citizen  of  another  state  should  have  his  remedy  in  this  court,  and 
not  in  a  county  where  the  parties  against  whom  the  remedy  is 
sought  would  compose  the  court  and  jury  to  decide  their  own 
case." 

411.  The  federal  courts  have  no  jurisdiction  of  actions  be- 
tween states  and  their  own  corporations;  but  that  jurisdiction 
extends  "to  all  controversies  between  a  state  and  the  citizens  of 
another  state."  J  In  a  suit  by  the  Commonwealth  of  Pennsylva- 
nia against  a  corporation,  an  averment  that  the  defendant  is  a 
"  body  politic  in  the  law  of,  and  doing  business  in,  the  State  of 
California,"  was  held  to  be  insufficient  to  establish  the  jurisdiction 
of  the  courts  of  the  United  States,  because  it  did  not  necessarily 
import  that  the  corporation  was  not  created  by  the  laws  of  the 
State  of  Pennsylvania.2 

Inasmuch  as  the  Judiciary  Act3  provides  that  the  United  States 
Circuit  Court  shall  have  jurisdiction  only  of  suits  between  a  citi- 
zen of  the  state  in  which  the  suit  is  brought  and  a  citizen  of  an- 
other state,  and  that  suit  shall  be  brought  in  the  district  in  which 
the  defendant  is  an  inhabitant,  or  in  which  he  shall  be  found  at 
the  time  of  serving  the  writ,  if  a  corporation  or  person  necessary 
to  the  litigation,  but  not  belonging  to  such  district,  be  joined  as 
defendant  witli  other  defendants  belonging  to  such  district,  the 
court  has  no  jurisdiction  of  such  non-resident  party.  But  in  a  suit 
to  foreclose  a  mortgage  given  by  a  corporation  the  bondholders 
are  not  necessary  parties;  and  if  some  of  them  are  joined  as  de- 

1  I5y    Ani<lc  xi.  of   Amendments    to        2  Pennsylvania  v.  Quicksilver  Co.  10 

tin-  Constitution,  a   state  cannot  be  sued     Wall.  553. 

by  citizens  of  another  state.  8  Judiciary  Act  of  1789. 

389 


§  412.]  REMEDIES   AND   JURISDICTION   OF   COURTS. 

fendants  it  is  not  necessary  that  their  citizenship  should  appear  to 
be  such  as  to  entitle  them  to  be  parties.1 

A  corporation  which  has  a  legal  existence  in  any  one  state  can 
sue  in  the  federal  courts  within  any  other  state.2 

412.  Where  a  railroad  company  which  maintains  a  con- 
tinuous line  of  road  through  several  states  holds  charters  from 
each  of  the  states  in  which  any  part  of  its  road  is  located,  it  is, 
for  the  purpose  of  giving  jurisdiction  to  the  courts  of  the  United 
States,  a  citizen  of  each  of  the  states  under  whose  laws  it  exists. 
Thus,  the  Philadelphia,  Wilmington,  and  Baltimore  Railroad  Com- 
pany, owning  a  line  of  road  from  Philadelphia  to  Baltimore,  run- 
ning through  parts  of  the  States  of  Pennsylvania,  Delaware,  and 
Maryland,  and  incorporated  in  each,  is  a  corporation  of  each  of 
these  states,  and  a  citizen  of  each  within  the  meaning  of  the  Ju- 
diciary Act.  The  fact  that  only  a  small  portion  of  its  road  is  in 
the  State  of  Delaware  does  not  prevent  its  being  sued  in  that  dis- 
trict.3 With  reference  to  the  Ohio  and  Mississippi  Railroad  Com- 
pany, Taney,  C.  J.,  said  :4  "It  is  true  that  a  corporation  by  the 
name  and  style  of  the  plaintiff's  appears  to  have  been  chartered 
by  the  States  of  Indiana  and  Ohio,  clothed  with  the  same  capaci- 
ties and  powers,  and  intended  to  accomplish  the  same  objects,  and 
it  is  spoken  of  in  the  laws  of  the  states  as  one  corporate  body,  ex- 
ercising the  same  powers  and  fulfilling  the  same  duties  in  both 
states.  Yet  it  has  no  legal  existence  in  either  state  except  by  the 
law  of  the  state,  and  neither  state  could  confer  on  it  a  corporate 
existence  in  the  other,  nor  add  to  or  diminish  the  powers  to  be 
there  exercised.  It  may,  indeed,  be  composed  of  and  represent 
under  the  corporate  name  the  same  natural  persons.  But  the 
legal  entity  or  person  which  exists  by  force  of  law  can  have  no  ex- 
istence beyond  the  limits  of  the  state  or  sovereignty  which  brings 
it  into  life  or  endues  it  with  its  faculties  and  powers.  The  Ohio 
and  Mississippi  Railroad  Company  is  therefore  a  distinct  and  sep- 

1  Keep  v.  Michigan  Lake  Shove  R.  R.     tional    Bank    of    Chicago    v.    Baack,    8 
Co.  6  Chicago  Le^al  News,  101  ;    and  see     Blatchf.  137. 

Hervey  v.  111.  Midland   Ry.  Co.  7   Biss.  3  Minot  v.  Phila.,  Wilmington  &  Balti- 

103,  as  to  merely  nominal  parties  having  more  R.  R.  Co.  2  Abbott's  C.  &  D.  Ct.  R. 

no  actual  interest.  323  ;    Circuit    Court   for   the   District    of 

2  National    Park    Bank    of   N.   Y.   v.  Delaware,  before  Strong,  J. 

Nichols,  4  Biss.  315;  Manufacturers'  Na-         *  Ohio  &  Miss.  R.  R.  Co.  v.  Wheeler,  1 

Black,  286. 
390 


JURISDICTION   OF   STATE   AND    FEDERAL    COURTS.       [§§  413,  414. 

arate  corporate  body  in  Indiana  from  the  corporate  body  of  the 
same  name  in  Ohio." 

413.  When  two  or  more  states  have  by  concurrent  legisla- 
tion united  in  creating  one  and  the  same  railroad  corporation, 
as  they  may  do,  a  court  in  either  state  may  exercise  jurisdiction 
over  the  entire  line.1  By  executing  a  mortgage  as  one  body  cor- 
porate of  the  entire  line  of  road  and  property,  the  corporation 
would  be  estopped  in  a  suit  upon  such  mortgage  from  setting  up 
its  separate  existence  under  the  charters  it  has  secured  from  the 
different  states.2  Moreover,  if  in  a  suit  to  foreclose  such  a  mort- 
gage the  corporation  be  served  with  process  in  the  state  in  which 
the  suit  is  brought,  and  it  enters  its  appearance  and  answers  the 
bill  by  its  common  name,  the  court  would  have  jurisdiction  through 
such  appearance  of  the  separate  corporations  which  have  joined 
under  such  common  name  if  it  be  conceded  that  the  corporations 
are  separate  and  distinct  ; 3  for  a  corporation  may  waive  its  right 
to  be  sued  only  in  the  state  in  which  it  is  found  or  resides,  and 
enter  its  appearance  in  any  other  jurisdiction  it  pleases.4 

Where  a  railroad  company  owning  a  railroad  lying  in  two  dif- 
ferent states,  and  chartered  by  each  of  these  states,  mortgages 
the  whole  road  and  franchise,  whether  there  are  two  distinct  cor- 
porations, or  one  only,  under  these  charters  there  is  but  one  mort- 
gage, and  that  embraces  the  whole  road  ;  and  therefore  if  the  right 
of  redemption  in  one  state  be  sold  on  execution,  the  purchaser  is 
entitled  to  redeem  the  whole  road  from  the  mortgage.  He  cannot 
redeem  the  part  lying  in  one  state  alone,  if  he  would  ;  for  the 
mortgagees  have  a  lien  upon  every  part  of  the  road  to  secure 
every  part  of  the  debt.5 

414.  When  a  mortgage,  executed  by  a  railroad  corporation 
organized  under  the  laws  of  two  or  more  states,  covering  its 
entire  road  and  franchises,  is  foreclosed,  by  suit  in  a  court  hav- 
ing jurisdiction  in  one.  state  only,  but  having  jurisdiction  of  the 
mortgagor  and  of  the  mortgage  trustees,  a  valid  decree  of  sale 

1  Wilmer  v.  Atlanta  &  Richmond  Air  -  Wilmer  v.  Atlanta  &   Richmond  Air 

Line  Ry.  Co.  -i  Woods,  109;  S.  '  .  lb.  447,  Line  Ry.  Co.  2  Woods,  447,  455. 

454;  E                 on,  Hartford  &    Erie  It.  *  Northern  Ind.  R.  R.  Co.  v.  Michigan 

R.  Co.  107  Mass.  I.  Cent.  R.  R.  Co.  i">  How.  242. 

>  Wilmer  v.  Atlanta  &  Richmond  Air  6  Wood  v.  Goodwin,  49  Me.  260. 
Line  Ity.  Co.  2  Woods,  447,454. 

391 


§  415.]  REMEDIES   AND   JURISDICTION   OF    COURTS. 

of  the  entire  mortgaged  property  may  be  made,  although  a  part 
of  the  property  he  situated  beyond  the  court's  jurisdiction.1 
While  the  court  cannot  send  its  process  beyond  its  own  state, 
and  cannot  deliver  possession  of  land  in  another  jurisdiction,  it 
may  command  and  enforce  a  transfer  by  process  against  the  de- 
fendant. It  may,  moreover,  in  a  proper  case,  effect  the  transfer 
by  the  agency  of  the  trustees  when  they  are  complainants,  by  de- 
creeing that  they  shall  sell  and  convey  all  the  mortgaged  property 
in  the  several  states.2 

It  is  true  that  independent  suits  may  be  prosecuted  for  the 
foreclosure  of  a  railroad  mortgage  in  each  of  the  several  states  in 
which  a  line  of  railroad  exists  ;  and  in  such  case  one  suit  may 
be  regarded  as  the  principal  action  and  the  others  merely  as 
auxiliary  or  subsidiary;  or  each  suit  may  be  prosecuted  with  the 
intention  of  affecting  the  property  within  the  limits  of  the  state 
where  it  is  brought.  In  the  latter  case  the  proceedings  in  the 
different  courts  should  be  uniform,  if,  as  generally  would  be  the 
case,  the  interests  and  the  end  to  be  attained  are  the  same,  and 
a  sale  of  the  property  as  a  whole  is  desired.3 

III.  Effect  of  Consolidation  of  Railroad  Corporations  upon  the 
Jurisdiction  of  Suits  against  them. 

415.  When  two  or  more  corporations  organized  under  the 
laws  of  the  same  state  are  consolidated,  the  old  corporations  are 
extinguished  and  their  powers  merged  in  the  new.  The  consoli- 
dated corporation,  for  the  purpose  of  answering  for  the  liabilities 
of  the  old  corporations,  is  deemed  the  same  as  each  of  its  constitu- 
ents, and  may  be  sued  under  its  new  name  for  their  debts  as  if  no 
change  had  been  made  in  the  name  or  organization  of  the  original 
corporation.4  When  the  original  corporations  were  incorporated 
by  the  laws  of  different  states,  and  by  concurrent  legislation  of 
these  states  these  corporations  are  consolidated  into  one  company, 
different  views  have  been  entertained  not  only  as  to  the  result  of 
the  consolidation  upon  the  original  companies,  but  as  to  the  effect 

1  Mailer  v.  Dows,  94  U.  S.  444.  Am.  Railw.   R.   467  ;    Indianapolis,  Cin- 

2  McElrath  v.  Pittsburg  &  Steubcnville  cinnati  &  Lafayette  R.  R.  Co.  v.  Jones, 
R.  R.  Co.  55  Pa.  St.  189;  Muller  v.  Dows,  29  Ind.  465;  McMahan  v.  Morrison,  16 
supra.  Ind.  172.     See  Piatt  v.  N.  Y.  &  Boston  R. 

3  In  re  United  States  Rolling  Stock  Co.  R.  Co.  26  Conn.  544  ;  Zimmer  v.  State, 
55  How.  Pr.  (N.  Y.)  286.  30  Ark.  677;  Lauman  v.  Lebanon  Valley 

1  Meyer  v.  Johnston,  53  Ala.  237  ;  15     R.  R.  Co.  30  Pa.  St.  42. 
392 


EFFECT    OF   CONSOLIDATION   UPON   JURISDICTION.         [§  416. 

of  it  upon  the  new.  Upon  the  one  hand  it  is  claimed  that  the 
consolidated  company  is  one  corporation,  while  upon  the  other  it 
is  claimed  that  this  is  in  fact  two  corporations  having  the  same 
name,  the  same  officers  and  stockholders,  and  a  unity  of  interest. 
Under  the  one  view,  the  old  corporations  no  longer  exist ;  while 
under  the  other  view,  they  still  exist  as  separate  entities,  but  hav- 
ing the  same  name.  As  a  practical  matter  it  is  generally  of  no 
consequence  which  view  is  taken.  A  suit  by  or  against  the  con- 
solidated company  is  well  brought,  whether  it  be  one  corporation 
or  two,  for  the  necessary  party  is  in  either  case  before  the  court.1 

Two  or  more  states  through  which  a  railroad  runs  may,  by  con- 
current legislation,  unite  in  creating  the  same  body  corporate.2 
The  Supreme  Court  of  the  United  States  has  declared  that  there 
is  no  reason  why  several  states  cannot,  by  competent  legislation, 
unite  in  creating  the  same  corporation,  or  in  combining  several 
preexisting  corporations  into  a  single  one.3  The  effect  of  the  con- 
solidation of  several  corporations  may  be  to  dissolve  the  old  corpo- 
rations, and  at  the  same  instant  to  create  a  new  one  with  the 
property  and  stockholders  of  those  passing  out  of  existence.4  But 
the  dissolution  of  the  old  corporations  does  not  necessarily  follow 
from  their  consolidation.  Whether  such  is  the  result  of  their 
union  is  a  question  to  be  determined  by  the  intent  of  the  legis- 
lature authorizing  the  consolidation,  and  that  of  the  parties  unit- 
ing in  it,  as  well  as  by  considerations  of  necessity  arising  from  the 
rights  and  liabilities  of  the  old  corporations  which  may  be  still 
outstanding  after  the  union. 

416.  Whether  a  consolidation  of  railroad  companies  works  a 
dissolution  of  the  old  companies  and  the  creation  of  a  new  com- 
pany has  sometimes  been  regarded  as  depending  almost  wholly 
upon  the  legislative  intent  manifested  in  the  statute,  under  which 
the  consolidation  takes  place.5  If  the  amalgamation  be  full  and 
complete,  the  effect  may  be  to  work  a  dissolution  of  the  old  com- 
pany and  the  creation  of  a  new  company.  If  the  statute  contains 
no  grant  of  corporate  powers  to  the  consolidated  company,  it  is 

1  Paine  v.  Lake  Erie  &  Louisville  E.  R.  82;  and  sec  Philadelphia  &  Wilmington 
Co.  SI  [n  R.  R.  Co.  r.  Maryland,  10  How. 3!  6  :  Del- 

2  Wilmet  v.  Atlanta  &  Richmond  Air  aware  Railroad  Tax  in  re,  is  Wall.  206. 
Line   l;.v.  Co.  2    Woods,  409;    S.  0.  lb.        4  Shields  v.  Ohio,  95  U.  S.  319. 

447    154.  5  Central  R   R.  &  Banking  Co.  v.  Geor- 

3  Railroad  Co.  t>.  Harris,   12  Wall.   05,     gia,  'J2  U.  S.  665. 

898 


§  417.]  REMEDIES   AND   JURISDICTION    OF   COURTS. 

difficult  to  see  how  a  new  corporation  is  created.  A  grant  of  cor- 
porate  existence  is  never  implied.1  The  fact  that  a  consolidated 
company  is  liable  for  the  debts  of  the  old  companies,  or  that  it 
possesses  the  rights  of  the  old  companies,  does  not  necessarily 
imply  a  surrender  of  the  old  charters. 

417.  The  consolidation  of  the  stock  of  railroad  companies 
created  by  the  laws  of  different  states,  although  done  with 
legislative  authority,  does  not  constitute  the  corporations  thus 
consolidating  one  corporation  of  both  states,  or  of  either,  but  the 
corporation  of  each  state  continues  a  corporation  of  the  state  of  its 
creation,  the  same  persons  as  officers  and  directors  managing  and 
controlling  the  several  corporations  as  one  body.2  The  contract 
of  consolidation,  and  the  legislation  authorizing  and  confirming  it, 
create  substantially  a  new  corporation  with  a  new  name,  but  such 
corporation,  in  a  legal  point  of  view,  is  a  distinct  corporation  in 
each  state,  and  so  remains.  A  mortgage  made  after  such  consol- 
idation, upon  the  line  of  road  in  one  state  only,  is  the  sole  mort- 
gage of  the  corporation  existing  in  that  state,  and  is  legal  and 
valid.  Thus  corporations  existing  in  Wisconsin  and  Illinois  were 
consolidated  in  this  way  under  the  name  of  the  Racine  and  Mis- 
sissippi Railroad  Company.  Under  this  name  it  executed  a  mort- 
gage of  that  part  of  the  road  situate  in  the  State  of  Illinois. 
There  being  a  corporation  having  a  distinct  entity  in  each  of  these 
states  bearing  this  name,  the  mortgage  was  regarded  as  the  mort- 
gage of  the  Illinois  corporation.  Another  railroad  corporation  of 
the  latter  state  having  been  united  with  the  consolidated  com- 
pany, and  a  mortgage  having  been  made  of  the  entire  railroad 
line  in  Illinois  owned  by  the  Illinois  corporation,  although  the 
last  consolidation  may  have  been  illegal,  that  fact  was  held  not  to 
affect  the  validity  of  the  mortgage  as  to  that  part  of  the  property 
not  owned  by  the  third  corporation  at  the  time  of  the  consolida- 
tion. The  company  having  issued  its  bonds  and  mortgage  under 
such  circumstances  was  estopped  from  denying  its  own  corporate 
existence  and  its  own  title  to  the  mortgaged  property.3 

1  Per   Strong,   J.,   in    Central  R.  R.  &  2  Racjne  &,  Miss.  R.  R.  Co.  v.  Farmers' 

Banking  Co.  v.  Georgia,  supra  ;  declaring  Loan  &  Trust  Co.  49  111.  331. 

that  assertions  to  the  contrary  in  McMa-  3  Racine  &  Miss.  R.  R.  Co.  v.  Farmers' 

han  v.  Morrison,  16  Ind.  172  ;   Clearwater  Loan  &  Trust  Co.  supra. 
v.  Meredith,  1  Wall.  25,  40,  were  not  nec- 
essary to  the  decisions  made. 

394 


EFFECT    OF   CONSOLIDATION   UPON   JURISDICTION.         [§  418. 

When  railroad  companies  organized  under  the  laws  of  different 
states  have  each  mortgaged  their  property,  and  they  have,  by 
virtue  of  the  laws  of  the  respective  states,  consolidated  into  one 
company,  a  holder  of  the  bonds  of  one  of  the  old  companies  may 
enforce  payment  in  the  courts  of  the  state  in  which  the  mortgaged 
road  is  situate,  by  a  foreclosure  suit  against  the  consolidated  com- 
pany ;  and  the  courts  of  the  other  state  in  which  no  part  of  the 
road  was  situated,  and  to  which  it  in  no  way  owed  its  existence, 
have  no  jurisdiction  to  enforce  the  remedy.1 

418.  A  consolidated  company  is  the  successor  of  each  of 
the  old  companies  so  far  as  concerns  a  right  of  action  of  a  cred- 
itor of  one  of  the  old  companies;  and  the  property  of  the  old 
company  in  the  hands  of  the  new  is  liable  for  the  satisfaction  of 
any  judgment  lie  inay  obtain.2  But  in  respect  to  the  property 
of  other  companies,  which  have  joined  in  the  consolidation,  the 
consolidated  company  is  a  new  and  independent  company  as  to 
the  creditors  of  one  of  the  old  companies,  and  such  creditors  have 
no  claim  against  the  new  property  unless  the  new  company  has 
expressly  assumed  the  obligations  of  the  old.  An  action  having 
been  commenced  against  the  Michigan  Southern  and  Northern  In- 
diana Railroad  Company  and  its  officers  in  New  York,  where  it 
was  a  foreign  corporation,  it  afterwards  consolidated  with  the 
Lake  Shore  Railway  Company  and  with  the  Buffalo  and  Erie 
Railroad  Company,  pursuant  to  the  laws  of  the  several  states  by 
which  the  original  companies  were  incorporated,  and  the  consoli- 
dated companies  were  known  by  the  name  of  the  Lake  Shore  and 
Michigan  Southern  Railway  Company.  L^pon  a  reference  a 
judgment  for  the  amount  claimed  was  reported  with  an  order  re- 
straining the  defendant  corporation  from  making  any  dividends 
until  the  amount  was  paid.  After  the  coming  in  of  the  report, 
an  order  was  made  substituting  the  Lake  Shore  and  Michigan 
Southern  Railway  Company  and  its  officers  as  defendants.  Upon 
appeal  this  latter  order  was  held  erroneous,  as  it  made  the  con- 
solidated company  and  its  officers   Liable  upon  the  original  con- 

1  i:  Hon  &  Hamilton  B.  B.  Co.  >•.  Hunt,     Central  Ry.  Co.  29  Md.  557  ;    Bruffetl  v. 
20  Ind.  457.  Greal    Western    R.    R.   Co.   25    I  I 

nty  v.  Lnke  Shore  &  Mich.  8odth.  Powell  v.  North  Mo.  R.  R.  42  Mo.  63; 
Ry.  Co.  52  X.  V.  .';<;.•>,;  Chase  v.  Vander-  Selma,  Rome  &  Dalton  R.  R.  Co.  v.  Har- 
bilt,  62  N.   V.  .",07;   Tagart  v.  Northern    bin,  40  Qa.  706. 

S95 


§  410.]  REMEDIES   AND   JURISDICTION   OF   COURTS. 

tracts,  and  subjected  them  and  all  the  property  of  the  consoli- 
dated company  fco  the  restraint  adjudged  against  the  old  company- 
The  effect  of  the  substitution  is  not  merely  to  continue  against 
the  now  corporation  and  its  officers  proceedings  which  affected 
the  property  of  the  original  defendants,  but  to  subject  the  prop- 
erty of  two  other  companies  to  judgment  rendered  subsequently 
to  the  consolidation  in  an  action  to  which  they  were  not  parties.1 

After  the  consolidation  of  two  or  more  companies  into  one 
under  a  new  name,  a  suit  may  be  maintained  against  it  by  that 
name  upon  a  note  or  bond  executed  by  one  of  the  consolidated 
companies.  The  company  is  estopped  from  denying  the  name  by 
which  it  is  sued.  The  old  company  which  executed  the  obliga- 
tion has,  by  force  of  the  consolidation,  assumed  the  new  name.2 

419.  Where  the  articles  of  consolidation  of  two  railway 
companies  provide  that  the  new  company  shall  assume  the 
debts  and  liabilities  of  the  old  companies,  and  shall  carry  out  all 
their  unexecuted  contracts,  and  the  act  of  legislature,  ratifying 
and  confirming  the  consolidation,  saves  the  rights  and  remedies  of 
creditors,  a  creditor  of  one  of  the  old  companies  may  maintain  his 
action  against  the  new  company.3  The  consolidated  company, 
though  having  a  new  name,  is  estopped  to  deny  the  name  by 
which  it  is  sued.4 

When  a  consolidated  company  becomes,  by  virtue  of  the  con- 
solidation, liable  for  the  debts  of  the  companies  composing  it,  the 
creditors'  remedy  is  complete  and  adequate  at  law,  and  a  court  of 
equity  will  not  assume  jurisdiction  to  enforce  it.5 

When  a  new  corporation  formed  by  the  consolidation  of  two  or 
more  other  corporations  assumes  the  debts  and  obligations  of  the 
original  companies,  a  cause  of  action  by  a  holder  of  preferred  or 
guaranteed  stock  of  one  of  the  old  companies  to  enforce  an  alleged 
contract  to  pay  specified  dividends  upon  such  stock  is  against  the 
new  corporation,  and  its  officers  are  not  necessary  or  proper  parties 
to  the  action.6     "A  judgment  or  decree  against  the  corporation  is 

1  Prouty  v.  Lake  Shore  &  Mich.  South.  3  Western  Union  R.  R.  Co.  v.  Smith, 
Ry.  Co.  52  N.  Y.  363.  75  111.  496. 

2  Columbus,  Chicago  &  Ind.  Cent.  Ry.  *  Columbus,  Chicago  &  Indiana  Cent. 
Co.  v.  Skidmore,  64  111.  566 ;    Columbus,  Ry.  Co.  v.  Skidmore,  69  111.  566. 
Chicago  &  Ind.  Cent.  Ry.  Co.  v.  Powell,  5  Arbuckle  v.  111.  Midland  Ry.  Co.  81 
40  Ind.  87.  111.  429. 


396 


6  Chase  v.  Vanderbilt,  62  N.  Y.  307. 


COURT   FIRST  ASSUMING  JURISDICTION   RETAINS  IT.       [§§  420,  421. 

binding  upon  the  directors  as  well  as  upon  all  classes  of  stock- 
holders. It  affects  the  common  property  of  all ;  and  if  at  an}'  time 
or  for  any  reason,  during  the  progress  of  a  litigation,  it  is  made  to 
appear  that  the  directors  do  not  or  cannot  properly  protect  the 
special  interests  of  any  class,  courts,  upon  application,  would  have 
the  power  to  give  the  necessary  relief  or  an  opportunity  to  be 
heard.  As  the  directors  are  under  the  same  obligation  to  all  the 
stockholders  the}'  represent,  they  cannot  be  charged  by  a,  plaintiff 
in  an  action  with  the  duty  of  especially  taking  care  of  and  protect- 
ing the  interests  of  one  class  of  stockholders  as  against  the  others  ; 
and  if  for  any  sufficient  reason  the  common  stockholders,  in  person 
or  as  representatives,  are  necessary  or  proper  parties,  the  plaintiff 
should  select  other  stockholders  not  having  an  official  relation  to 
the  company,  not  those  whose  general  duty  might  conflict  with 
special  interests,  and  thus  render  them  improper  representatives 
of  a  particular  class  of  stockholders." 

420.  A  consolidated  company  is  not  the  same  as  one  of  its 
constituents  as  regards  an  executory  contract  with  a  stran- 
ger to  the  undertaking  to  deliver  bonds.  The  New  Jersey,  Hudson, 
and  Delaware  Railroad  Company,  having  agreed  to  deliver  to  sub- 
scribers bonds  of  the  company  in  consideration  of  moneys  to  be 
paid  in  instalments,  as  the  work  upon  the  railroad  should  go  for- 
ward, became  amalgamated  with  two  other  companies  under  the 
name  of  the  New  Jersey  Midland  Railway  Company,  and  having 
tendered  the  bonds  of  the  consolidated  company,  brought  suit 
upon  the  subscriptions.  It  was  claimed  that  the  company  had  not 
ceased  to  exist,  but  had  merely  changed  its  name  and  form  of  or- 
ganization. It  was  held  that  the  suit  would  not  lie,  the  bonds 
offered  not  being  those  agreed  for ;  just  as  the  bonds  of  a  road  of 
ten  miles  in  length  are  different  securities  from  bonds  of  a  com- 
pany having  a  road  a  hundred  miles  long.1 

III.  In  Cases  of  Concurrent  Jurisdiction,  the  Court  which  first  as- 
sumes  Jurisdiction  retains  it. 

421.  Where  two  or  more  courts  have   concurrent  jurisdic- 
tion  of  the  same  subject  matter  of  litigation,  that  in  which 
suit  is  first  brought  should  be  lefl  t<>  adjudicate  between  the  par- 
ties.   Any  court  in  which  suit  upon  the  same  matter  is  afterwards 
1  New  Jersey  Midland  By.  Co.  v.  Strait,  85  N..J.  I-  322. 

397 


§  421.]  REMEDIES   AND   JURISDICTION   OF   COURTS. 

brought  should,  upon  being  advised  of  the  pendency  of  the  suit 
in  a  court  of  competent  jurisdiction,  and  having  precedence  in 
point  of  time,  dismiss  the  bill  and  discharge  its  receiver,  if  one 
has  been  appointed.1 

Jurisdiction  of  a  cause  and  of  the  subject  matter  of  it  once  ob- 
tained by  one  court  cannot  be  taken  away  by  proceedings  in  an- 
other court  of  coordinate  jurisdiction.  After  a  bill  had  been  filed 
in  the  Circuit  Court  of  the  United  States  for  the  foreclosure  of  a 
mortgage,  a  compromise  agreement  was  made,  providing  among 
other  things  for  the  conversion  of  a  portion  of  the  bonds  into 
stock,  and  a  new  organization  of  the  company,  which  the  court 
ratified  in  the  form  of  a  decree.  On  the  faith  of  the  decree,  bonds 
had  been  surrendered  and  stock  taken,  the  property  placed  in  the 
hands  of  a  trustee,  who  was  authorized  to  incur  debts  and  pledge 
property  to  secure  them.  The  decree,  so  far  as  it  provided  for  the 
conversion  of  bonds  into  stock,  could  not,  of  course,  be  made 
effectual  without  the  consent  of  the  bondholders,  for  that  would 
be  changing  the  contract  without  their  consent.  Any  bondholder 
who  had  not  become  a  party  to  the  agreement  could  proceed  to 
enforce  a  foreclosure  of  the  mortgage,  and  this  court,  rather  than 
a  state  court,  was  the  proper  tribunal  for  that  purpose.  "  It  was 
not  possible,"  said  Judge  Drummond,2  "  that  the  cause  could 
be  divided  into  fragments,  and,  in  the  actual  state  of  affairs,  one 
party  in  interest  go  to  one  court,  and  another  to  a  different 
court,  for  the  enforcement  of  his  equitable  rights.  If  the  under- 
standing of  the  parties  and  the  terms  of  the  decree  were  en- 
tirely carried  out,  there  would  be  no  difficulty ;  but  if  in  that 
way  their  expectations  were  not  realized,  and  there  should  be  a 
failure  to  satisfy  the  claims  of  the  creditors,  there  would  seem 
to  be  no  question  that  this  court  was  the  proper  tribunal  to 
do  equity,  because  it  was  only  by  control  over  the  orders  of 
the  court,  already  made,  that  this  could  be  accomplished."  The 
trustee  should  also  report  to  that  *  court,  and  any  of  the  parties  in 
interest  had  the  right  to  insist  upon  his  so  reporting.  He  had  no 
right  to  turn  over  to  another  tribunal  matters  which  have  been 
partially  adjudicated  in  the  Circuit  Court,  for  that  was  the  only 

1  Keep  v.  Michigan  Lake  Shore  R.  R.        2  Bill  v.  New  Albany,  &c.  Ry.  Co.  2 
Co.  6  Chicago  Legal  News,  101  ;  Milwau-     Biss.  390. 
kee  &  St.  Paul  R.  R.  Co.  v.  Milwaukee  & 
Minn.  R.  R.  Co.  20  Wis.  165. 
398 


COURT   FIRST   ASSUMING   JURISDICTION   RETAINS   IT.       [§  422. 

court  whose  decision  upon  the  matters  involved  would  be  binding 
upon  the  parties.     Therefore,  when  the  trustee,  during  the  pen- 
dency of  this  suit,  without  the  permission  of  that  court,  filed  a 
bill  in  a  state  court  to  foreclose  the  same  mortgages  which  were 
the  subject  of  the  bill  in   the  Circuit  Court,  and  a  receiver  was 
appointed  and  a  sale  made  in  the  state  court,  and  the  property 
delivered  to  the  purchaser,  such  an  interference  on  the  part  of  the 
state  court  with  property  at  the  time  within  the  jurisdiction  of  the 
Circuit  Court,  was  unauthorized,  and  the  latter  court  has  never- 
theless jurisdiction  of  the  property,  and  a  bondholder  is  entitled  to 
the   equitable  interposition  of  the  court  to  protect  his  rights,  and 
to  demand  an  account  from  the  trustee  or  his  representatives.     As 
to  the  effect  of  the  proceeding  in  the  state  court  upon  the  juris- 
diction of  the  Circuit  Court  over  the  cause  and  the  subject  matter 
of  it,  Judge  Drummond  said:    "There  can  be  no  doubt  it  has 
created  great  confusion  in  the  position  of  those  claiming  under  the 
mortgages,  and  embarrassment  in  the  court  to  deal  properly  with 
their  interests.     It  has  thus  brought  about  an  apparent  conflict 
between  courts,  state  and  federal,  which  should  always  be  avoided. 
But  the  conflict  arises  from  acts  done  after  the  court  had  obtained 
jurisdiction  of  the  cause,  and  for  which,  therefore,  it  cannot  be 
justly  held  accountable  ;  and  when  a  party  affected  by  an  order  or 
decree  entered  in  a  pending  cause  asks  for  relief,  it  is  no  answer 
to  say  that  another  jurisdiction  has  attempted  to  seize  the  prop- 
erty, and  thus  place  it  beyond  the  power  of  the  court  to  give  re- 
lief.    The  question  always  must  be,  Is  it  competent  for  the  court 
to  act?     If  so,  its  duty  is  plain,  and  it  necessarily  follows  from 
what  has  been  said  that,  in  my  opinion,  the  property  is  still  within 
the  control  of  this  court  to  adjudicate  upon  the  equitable  rights  of 
all  who  have  ever  been  before  it." 

422.  Proceedings  in  a  second  foreclosure  suit  while  one  is 

pending,  void.  —  After  a  foreclosure  suit  has  been  t imenced, 

so  long  as  it  is  pending  and  the  court  retains  jurisdiction  of  the 
cause,  other  proceedings  for  the  same  purpose  in  another  court 
are  irregular  and  void,  although  prosecuted  under  the  siippositP.n 
that  the  proceedings  in  the  former  case  wen-  ended.  Thus,  a  suit 
having  been  commenced  in  the  Circuil  Courl  of  the  I  oited  States 
for  the  District  of  Indiana  in  1857,  to  foreclose  mortgages  given 
by  the  New  Albany  and  Salem  Railroad  Company,  and  a  decree 

899 


§  423.]  REMEDIES   AND  JURISDICTION   OF   COURTS. 

having  been  entered  by  consent  declaring  the  rights  and  interests 
of  the  bondholders  under  the  several  mortgages  and  of  the  stock- 
holders, the  purpose  of  which  was  to  effect  a  reorganization  of  the 
company,  no  further  proceedings  were  had,  when  nearly  ten  years 
afterwards,  in  August,  1868,  some  of  the  bondholders  demanded 
that  the  trustee  should  take  proceedings  to  foreclose  the  mort- 
gages. The  trustee,  acting  upon  the  assumption  that  the  original 
suit  brought  in  the  Circuit  Court  for  that  purpose  had  been  ended 
by  the  decree  referred  to,  commenced  suit  for  the  foreclosure  de- 
sired in  a  court  of  the  State  of  Indiana.  This  suit  proceeded  to  a 
final  decree,  under  which  the  property  was  sold  to  purchasers  who 
organized  themselves  into  a  new  company.  The  holder  of  a  subse- 
quent mortgage  bond  then  petitioned  the  Circuit  Court,  in  which 
the  original  suit  was  commenced,  for  the  appointment  of  a  receiver 
in  that  suit,  upon  the  assumption  that  this  court  still  retained 
jurisdiction  of  the  suit  and  the  mortgaged  property.  This  view 
was  sustained  by  the  Circuit  Court ;  and  the  successor  of  the  trus- 
tee who  had  brought  suit  in  the  state  court  was  led  to  apply  for 
leave  to  file  a  supplemental  bill  for  the  foreclosure  of  the  mort- 
gages, and  his  application  was  granted.1 

One  of  the  questions  which  arose  upon  this  supplemental  bill 
was  whether  a  process  of  subpoena  should  have  issued  upon  it. 
The  Supreme  Court  of  the  United  States  held  that  this  is  only 
necessary  where  new  parties  are  brought  in.  The  supplemental 
bill  is  a  mere  adjunct  to  the  original  bill,  and,  where  the  parties 
have  already  been  served,  no  further  subpoena  for  them  is  required.2 

V.  Sale  of  Franchise  or  Property  of  Railroad  Company  on  Ex- 
ecution. 

423.  The  franchise  of  a  railroad  company  or  of  any  sim- 
ilar corporate  body,  and  corporate  property  essential  to  the  en- 
joyment of  the  franchise,  are  not  subject  to  sale  on  execution, 
unless  the  legislature  assents  to  the  transfer.3     This  is  the  com- 

1  Bill  v.  New  Albany,  &c.  Ry.  Co.  2  13  S.  &  R.  (Pa.)  210;  Lccdom  v.  Plym- 
Biss.  390.  outh  R.  R.  Co.  5  W.    &  S.  (Pa.)   265; 

2  Shaw  v.  Bill,  95  U.  S.  10.  Stewart  v.  Jones,  40  Mo.   140  ;    Wood  v. 
8  Gue  v.  Tide  Water  Canal  Co.  24  How.     Truckee    Turnpike    Co.    24     Cal.    474; 

257  ;    Tippetts  v.   Walker,  4  Mass.   595,  Thomas  v.  Armstrong,  7  Cal.  286  ;   Mun- 

597,  per  Parsons,  C.  J. ;  Ludlow  v.  Hurd,  roe  v.  Thomas,  5  Cal.  470  ;    Hatcher  v. 

1    Dis.    (Ohio)    552  ;     Ammant    v.   New  Toledo,  Wabash  &  Western  R.  R.  Co.  62 

Alexandria    &    Pittsburg   Turnpike   Co.  111.  477  ;    Oakland  Ry.  Co.  v.  Keenan,  56 
400 


SALE   ON  EXECUTION.  [§  424. 

mon  law  rule,  and  a  statute  authorizing  a  sale  of  a  franchise  on 
execution,  being  in  derogation  of  the  common  law,  will  be  strictly 
construed.  Thus  if  the  statute  provides  for  a  sale  of  the  franchise 
for  the  shortest  period  that  will  satisfy  the  execution,  a  sale  of  the 
franchise  for  a  certain  period  in  part  payment  of  the  execution  is 
void.1  As  already  noticed,2  privileges  granted  to  corporations  of 
a  public  character  are  conferred  with  a  view  to  the  public  use  and 
accommodation,  and  they  cannot  voluntarily  deprive  themselves 
of  their  franchises  or  of  their  property  necessary  for  the  exercise 
of  these  franchises  ;  and  in  pursuance  of  the  same  policy  the 
franchises  and  property  of  such  corporations  are  not  allowed  to 
be  taken  from  them  on  execution,  because  this  would  tend  to 
defeat  the  whole  object  of  the  charter,  and  either  to  place  the 
property  and  franchises  in  the  hands  of  parties  to  whom  it  had 
not  been  confided,  or  else  to  break  up  and  destroy  the  corpora- 
tion and  render  its  improvements  useless  to  the  public.3 

A  turnpike  road  cannot  be  levied  upon  by  a  judgment  creditor. 
Aside  from  the  remedy  that  might  be  afforded  by  a  Court  of 
Chancery,  there  is  no  remedy  for  the  collection  of  debts  against 
such  property,  unless  it  be  given  by  statute,  in  the  nature  of  a 
sequestration,  to  take  the  net  profits  after  providing  for  the  repair 
and  maintenance  of  the  road.  Real  estate  of  the  company  not 
necessary  for  the  use  of  the  road  may  be  taken  on  execution  ;  but 
if  such  real  estate  be  blended  with  the  road  in  one  levy  so  that  it 
is  difficult  to  separate  them,  the  court  will  set  aside  the  whole  pro- 
ceedings.4 

424.  The  mere  fact  that  the  property  of  a  railroad  is  sub- 
ject to  a  mortgage  does  not  operate  to  exempt  such  property, 
which  is  in  its  nature  personal,  from  being  levied  upon  by  judg- 
ment creditors  of  the  company  so  long  as  the  mortgagee  has  not 
taken  possession  under  the  mortgage.  The  only  remedy  of  tin; 
mortgagee  in  such  case  is  to  invoke  the  interposition  of  a  Court 
of  Equity  to  prevent  further  proceedings  upon  the  execution  ;  and 

Pa.    St.    L98.    <'->nini>    State   v.   Hives,  5  8  Susquehanna  Canal   Co.  v.  Bonham, 

Ired    [N.  C.)  L.  297.  9  W.  &  S.  (I'm.)  72. 

1  James  v.  Pontiac  &  Groreland  Plank  4  Ammant  v.  New  Alexandria  &  Pitts- 
Boad  Co.  8  Mich.  91  ;  and  see  Sejmour  bnrg  Turnpike  Read  Co.  13  B.  &  R.  (Pa.) 
v.  Milford  &  Chillicothe  Turn]. ike  Co.  10  210;  and  confirmed  by  Susquehanna  Canal 
Ohio,  470.  Co.  v.  Bonham,  supra. 

2  £S  1-25. 

26  401 


§  425.]  REMEDIES   AND   JURISDICTION   OF   COURTS. 

an  injunction  will  be  granted  upon  its  appearing  that  the  mort- 
gage security  is  inadequate.1  It  is  not  sufficient,  however,  to  show 
that  the  constant  and  uninterrupted  use  and  enjoyment  of  the 
property  by  the  railroad  company  is  indispensable  to  enable  it 
to  earn  money  with  which  to  pay  the  interest,  as  it  becomes  due. 
It  must  be  averred  and  proved  that  the  security  would  be  affected 
to  entitle  the  mortgagee  to  this  relief.2 

A  corporation  upon  whose  property  an  execution  has  been 
levied  cannot  itself  claim  protection  against  the  execution  and 
obtain  an  injunction  against  a  sale  under  the  execution,  upon 
the  ground  that  the  property  is  covered  by  mortgage  ;  whatever 
protection  the  mortgagee  is  entitled  to  must  be  asserted  by  him- 
self.3 

425.  Any  property,  which  is  a  part  of  a  railroad  mortgaged 
as  an  entire  property,  is  exempt  from  execution.  —  Rails  and 
chairs,  lying  by  the  track  in  readiness  for  repairs  or  reconstruction, 
are  not  liable  to  levy  and  sale  on  execution  as  against  a  mort- 
gagee of  the  road;4  nor,  according  to  some  authorities,  are  they  so 
liable  as  personal  property  even  as  against  the  railway  company 
itself.  The  general  principle  governing  this  matter  is  stated  in 
Sheppard's  Touchstone:5  "That  which  is  parcel  or  of  the  essence 
of  a  thing,  albeit  at  the  time  of  the  grant  it  be  actually  severed 
from  it,  doth  pass  by  the  grant  of  the  thing  itself.  And,  therefore, 
by  the  grant  of  a  mill  the  millstone  doth  pass,  albeit  at  the  time 
of  the  grant  it  be  actually  severed  from  the  mill.  So  by  the  grant 
of  a  house,  the  doors,  windows,  locks,  and  keys,  do  pass  as  parcel 
of  it,  albeit  at  the  time  of  the  grant  they  be  actually  severed  from 
the  house." 

A  mortgage  of  the  entire  property  of  a  railroad  company,  both 
that  which  it  has  at  the  time  and  that  which  it  may  afterwards 
acquire,  together  with  its  tools  and  income,  covers  wood  bought 
for  its  use;  and  therefore  a  judgment  creditor  maybe  enjoined 
from  selling  and  removing  such  property  on  petition  of  the  mort- 
gagees, when  it  appears  that  the  whole  property  mortgaged  is 

1  Coe  v.  Peacock,  14  Ohio  St.  187;  Lane  3  Boyd  v.  Chesapeake  &  Ohio  Canal 
v.  Baughman,  17  lb.  642  ;  Coe  v.  Colum-     Co.  17  Md.  195. 

bus,  Piqua   &  Ind.   R.    R.  Co.   10  Ohio  i  Covey  v.  Pittsburg,  Fort  Wayne  &Chi- 

St.  372,  380.  cago  R.R.Co.3  Phila.  (Pa.)  173;  Fahs  v. 

2  Coe  v.  Knox  County  Bank  of  Mount  Roberts,  54  111.  194.      See  §§  154-163. 
Vernon,  10  Ohio  St.  412.  &  Shep.  Touch,  page  90. 

402 


SALE   ON   EXECUTION.  [§§  426,  427. 

inadequate  to  satisfy  the  mortgage  debt.1  The  remedy  of  a 
judgment  creditor  in  such  case  is  in  equity,  to  have  the  interest 
of  the  mortgagor  ascertained  and  subjected,  in  such  mode  as  may 
be  consistent  with  the  rights  of  the  prior  incumbrancers,  to  the 
payment  of  his  judgment.  Under  a  mortgage  which  contains 
an  express  reservation  of  "  so  much  of  the  income  as  might  be 
necessary  to  pay  for  the  running  expenses  and  repairs"  of  the 
road,  when  the  nature  of  a  claim  against  the  road  is  such  as  to 
entitle  the  creditor  to  have  it  paid  out  of  the  earnings  of  the  com- 
pany, this  may  be  accomplished  by  appropriate  proceedings  in 
equity.  A  claim  for  damages,  on  account  of  stock  killed  upon  the 
road,  would  doubtless  come  within  such  an  exception,  and,  per- 
haps, even  without  such  express  reservation,  it  ought  to  be  re- 
garded as  an  incidental  liability  incurred  by  the  company  in  oper- 
ating the  road,  and  to  be  deducted  from  the  earnings  before  the 
net  income  covered  by  the  mortgage  could  be  ascertained.2 

426.  But  in  Minnesota  personal  property  may  be  seized 
upon  execution,  even  as  against  a  mortgagee.  Lumber  or  cord- 
wood  belonging  to  a  railroad  company  whose  property  is  subject 
to  mortgage  is  subject  to  levy  and  sale  upon  execution  by  a  judg- 
ment creditor  of  the  company.  Such  sale  divests  the  company 
of  its  property  in  the  lumber  or  wood,  and  passes  it  to  the  pur- 
chaser. It  severs  whatever  relation  or  connection  of  appurtenance 
or  otherwise  that  existed  between  the  lumber  or  cord-wood,  and 
the  railroad,  and  the  running  or  operating  of  the  same.  A  receiver, 
subsequently  appointed  in  a  suit  for  foreclosure,  cannot  recover 
possession  of  such  property.  Power  conferred  upon  such  receiver 
to  take  possession  of  the  railroad  and  its  property,  "and  also  all 
other  goods  and  chattels  owned  by  said  company  in  any  way  relat- 
ing or  appertaining  to  or  connected  with  said  railroad,  or  the  run- 
ning or  operating  of  the  same,"  does  not  avail  the  receiver,  be- 
cause  such  property  was  not  owned  by  the  company,  the  prior  sale 
having  divested  it  of  all  title  to  this  property.3 


427.  In  a  sale  of  property  to  a  railroad  company  a  stipu- 
lation as  to  the  time  of  the  passing  of  title  is  binding  bel  vre<  Q 

i  Lane  v.  Baugbman,  17  Ohio  Si.  642;        -  Lane  c.  Baughman,  17  Ohio  St.  648, 
Coev.  Peacock,  14  lb.  187.     Sec,  however,     G48,  per  White,  J. 

1    Roberta,  54  111.  194,  '  Mcllrathv.  Snure,  22  Minn.  891. 

403 


§  428.]  REMEDIES   AND   JURISDICTION   OF    COURTS. 

the  parties  to  the  contract,  and  also  as  against  creditors  of  the 
company  who  have  notice  of  such  contract.  Thus  the  St.  Joseph 
and  Denver  City  Railroad  Company  having  purchased  ties  under 
an  agreement  that  they  should  not  be  considered  the  property  of 
the  company  until  placed  under  the  rail,  a  creditor  of  the  com- 
pany, knowing  the  terms  of  the  contract,  could  acquire  no  title  to 
such  ties  by  a  levy  and  sale  on  execution  after  the  company  had 
taken  possession  of  the  ties  and  moved  them  to  different  places 
along  the  line  of  the  l'oad.  Such  a  sale  is  conditional,  and  until 
the  condition  is  performed  no  title  passes.1 

428.  The  appropriate  remedy  of  a  judgment  creditor  against 
a  railroad  corporation  is  by  application  to  a  Court  of  Equity, 
seeking  a  discovery  as  to  the  condition  of  the  company  ;  and  upon 
the  failure  of  the  officers  to  pay  when  directed  the  chancellor  may 
take  possession  of  the  road  through  a  receiver,  and  apply  the  net 
income  or  any  surplus  fund  to  the  payment  of  the  creditor's  claim. 
"To  permit  every  and  any  agent  of  a  corporation  like  this  to  be 
garnisheed  before  or  after  judgment  would  result  in  the  sacrifice 
of  all  the  private  and  public  interests  connected  with  it.  The 
chancellor,  by  giving  to  the  creditor  the  income  of  the  road,  re- 
taining enough  to  defray  the  necessary  expenses  of  the  corpora- 
tion, has  given  him  all  that  he  has  the  right  to  demand,  and  at  the 
same  time  preserves  the  corporate  property  for  private  and  public 
use.  Nor  does  this  ruling  prevent  a  corporation  from  being  gar- 
nisheed as  the  debtor  of  a  third  party,  whose  creditor  is  seeking 
to  make  his  debt.  In  such  a  case,  however,  the  court  will  re- 
quire payment  to  be  made  in  the  same  manner  as  if  the  company 
were  the  real  debtor."  2 

This  is  the  practice  adopted  in  England.3  The  Supreme  Court 
of  the  United  States  in  like  manner,  where  there  was  a  judgment 
at  law  against  a  bridge  company,  under  which  the  tolls  were  sold 
in  execution,  approved  of  the  appointment  in  equity  of  a  receiver 
to  collect  tolls,  and  pay  them  into  court,  to  the  end  of  dischai'g- 
ing  the  judgments  at  law.  The  court  declared  that  the  remedy 
at  law  of  creditors  holding  executions  against  corporations  is  ex- 

1  Owens  v.  Hastings,  18  Kans.  446.  3  Blanchard  v.  Cawthorne,  4  Sim.  566  ; 

2  Wilder  v.  Shea,  13  Bush  (Ky.),   128,     Fripp  v.  Chard  Ry.  Co.  11  Hare.  241. 
per  Pryor,  J. 

404 


SALE   ON   EXECUTION.  [§  429. 

ceedingly  embarrassed,  and  that  they  could  not  obtain  satisfaction 
of  their  judgments  unless  equity  afforded  relief.1 

Where  a  judgment  is  by  law  a  lien  upon  the  debtor's  real  es- 
tate, and  a  railroad  company  is  by  statute  the  owner  in  fee  of 
the  real  estate  taken  for  its  right  of  way,  as  is  the  case  in  Wis- 
consin, a  suit  in  equity  may  be  brought  to  have  a  judgment 
against  a  railroad  company  declared  a  lien ;  and  upon  a  sale  under 
a  decree,  followed  by  a  conveyance  duly  confirmed  by  the  court, 
the  whole  interest  of  the  company  existing  at  the  time  of  the 
rendition  of  the  judgment  passes  to  the  purchaser.2 

In  Massachusetts  it  is  provided  that  the  franchise  of  a  turn- 
pike or  other  corporation  authorized  to  receive  toll,  and  all  the 
rights  and  privileges  thereof,  are  liable  to  attachment  on  mesne 
process  and  to  sale  on  execution.  In  the  sale  of  such  franchise, 
the  person  who  satisfies  the  execution  with  all  fees  and  expenses, 
or  who  agrees  to  take  such  franchise  for  the  shortest  period  of 
time,  and  to  receive  during  such  time  all  such  toll  as  the  corpora- 
tion would  by  law  be  entitled  to  demand,  is  considered  the  high- 
est bidder.  The  corporation  retains  its  powers  in  all  other  re- 
spects than  that  to  take  the  tolls,  and  is  bound  to  the  discharge 
of  its  duties  just  as  it  was  before  the  sale.3 

429.  Statutory  provisions  for  enforcing  executions  against 
railroad  companies.  —  In  New  York  the  mode  appointed  by  law 
for  the  collection  of  a  judgment  against  a  railroad  company  after 
the  return  of  an  execution  unsatisfied,  is  by  an  action  in  which 
a  receiver  is  appointed  and  the  property  of  the  company  seques- 
tered for  the  creditor's  benefit.4 

In  Pennsylvania  it  is  provided  by  statute  that  a  judgment 
creditor  of  a  corporation  may  have  execution  by  fieri  facias,  which 
shall  command  the  sheriff  to  levy  upon  any  personal  or  real 
property,  franchises,  and  rights  of  such  corporation,  and  sell  the 
same.  The  levy  may  extend  to  the  property,  franchises,  and  rights 
of  the  corporation  in  every  county  of  the  commonwealth,  and 
the  sale  thereof  is  as  effectual  as  though  all  the  property  and  rights 

i  Covington  Drawbridge  Co.  v.  Shop-  There  is  a  somewhat  similar  Btatnte  in 

herd,  21  How.  112,  12  1  ;  and  see  Macon  &  Delaware.      R.  Code  1*74,  pp.  .■177,  :i7S. 

Western  R.  R.  Co.  v.  Parker,  9  Ga.  ."-77.  4  3  R.  S.  (5th  ed.)  768,  §44;  l    Lawi 

a  Railroad  '  !o.  v.  James,  6  Wall.  750.  1870,  ch.  422,  §  3  ;  Loder  v.  N.  Y.,  Utica  & 

Stat.   1800,  ch.   08,   §§25-34.  OgdenBburgh  B.  E.  Co.  4  Han  (N.Y.),  23. 

L05 


§  429.]  REMEDIES   AND  JURISDICTION   OF   COURTS. 

were  located  and  levied  upon  and  sold  in  the  county  wherein 
the  execution  was  issued.1  Insolvent  corporations  are  proceeded 
against  by  sequestration.2 

In  a  late  case  the  sale  by  a  sheriff  upon  a  judgment  of  part  of 
a  road  lying  in  one  state  seems  to  have  been  regarded  as  an  un- 
justifiable abuse  of  a  legal  right  which  would  be  restrained  on 
a  bill  filed  by  any  bondholder.3 

In  Virginia  the  road  and  franchises  of  a  railroad  company  are 
liable  for  the  payment  of  judgments  recovered  against  it.  Instead 
of  selling  the  interest  of  the  corporation  to  satisfy  a  small  debt, 
the  court  may  direct  a  lease  of  it  to  be  made  for  the  shortest  pe- 
riod, for  which  a  sufficient  rent  may  be  obtained  to  pay  the  debts 
and  the  costs  of  suit.  If  to  accomplish  this  object  it  is  necessary 
to  lease  the  railroad  for  a  term  which  will  yield  in  rents  a  sum 
far  exceeding  the  amount  of  the  judgments,  and  it  cannot  be 
leased  for  a  shorter  term,  the  creditors  are  entitled  to  have  it 
leased  for  the  longer  term.4 

Likewise  in  Kentucky  a  railroad  and  its  appurtenances  are 
treated  in  law  as  one  entire  thing,  which  cannot  be  sold  to  en- 
force the  payment  of  taxes  in  parcels,  as  for  instance  all  of  the 
road  in  one  county  cannot  be  sold  for  the  payment  of  the  tax 
within  that  county.  Fragmentary  taxations  or  sales  might  be 
unjustly  vexatious  and  injurious  to  the  owners,  and  might  disturb 
the  public  use  and  interest.5 

In  Georgia  a  chartered  railroad,  with  all  its  rights  and  priv- 
ileges, including  its  corporate  franchise,  is  property  subject  to  be 
applied  to  the  payment  of  its  debts,  and  may  be  sold  under  a 
judgment  at  law.  The  franchise  of  the  company  is  property.  It 
is  in  fact  the  chief  value  of  a  railroad.  There  is  no  exemption  pf 
any  property  of  a  corporation  from  the  payment  of  its  debts.  The 
judgment  and  execution  must  be  framed  upon  equitable  principles, 
although  under  the  peculiar  system  in  this  state,  a  court  of  law 
may  generally  administer  as  ample  relief  as  a  court  of  equity.6 

1  Act  of  1870,  p.  58,  §  1;  1  Brightly's  5  Applegate  v.   Ernst,   3   Bush   (Ky.), 
Purdon'sDig.  291.  648. 

2  Oakland  Ry.  Co    v.  Keenan,  56  Pa.  G  City  of  Atlanta  v.  Grant,  57  Ga.  340. 
St.  198.  In  regard  to  the  franchise  of  the  corpo- 

3  Dupont  v.  Bushong,  U.S.  Circuit  Ct.  ration  the  court  said  that  without  it  the 
1  Weekly  Notes  of  Cases,  378.  railroad  would  be  almost  worthless.     "  To 

4  Winchester   &   Strasburg  R.    R.  Co.  own  it  would  be  like  owning  a  horse,  with 
v.  Colfclt,  27  Gratt.  (Va.)  777.  no  right  to  ride  him  or  drive  him,  — no 

406 


SALE   ON  EXECUTION.  [§  429* 

In  Mississippi  the  equity  of  redemption  of  a  railroad  company- 
is  subject  to  sale  for  the  payment  of  the  company's  debts,  however 
long  a  time  the  mortgage  may  have  to  run.  A  resort  to  chancery 
is  now  necessary  in  all  cases.1 

In  Texas,2  the  road-bed,  track,  franchise,  and  chartered  rights 
and  privileges  of  an}'  railroad  company  are  made  subject  to  the 
payment  of  its  debts  and  legal  liabilities,  and  may  be  sold  in 
legal  satisfaction  of  the  same;  but  whenever  judgment  is  ren- 
dered against  any  railroad  company,  the  party  in  whose  favor 
such  judgment  is  rendered  may  have  execution  thereon,  directed 
to  the  sheriff  of  that  county  in  which  the  principal  office  of  said 
company  is  kept ;  and  if  the  said  company  fail  to  point  out  other 
property  to  satisfy  said  execution,  the  sheriff  may,  at  the  request 
of  the  plaintiff,  levy  the  same  upon  the  road-bed,  track,  franchise, 
and  chartered  powers  and  privileges  of  said  company  ;  and  said 
levy  is  held  to  embrace  the  whole  road-bed,  and  track,  and  entire 
line  of  said  railroad,  whether  situated  in  the  same  county  or  not  • 
and  he  is  required  to  proceed  to  advertise  and  sell  the  same  at  the 
court-house  door  of  his  county,  as  in  other  cases,  making  the  same 
advertisement  as  is  provided  by  law  in  cases  of  the  sale  of  lands ; 
and  upon  said  sale,  to  execute  to  the  purchaser  a  conveyance  of 
the  said  road-bed,  track,  franchise,  chartered  powers,  rights  and 
privileges. 

In  California,3  for  the  satisfaction  of  any  judgment  against  a 
corporation  authorized  to  receive  tolls,  its  franchise,  and  all  the 
rights  and  privileges  thereof,  may  be  levied  upon  and  sold  under 
execution,  in  the  same  manner  and  with  like  effect  as  any  other 
property.  The  purchaser  at  the  sale  receives  a  certificate  of  pur- 
chase of  the  franchise,  and  is  immediately  let  into  the  possession 
of  all  property  necessary  for  the  exercise  of  the  powers,  and  the 
receipt  of  the  proceeds  thereof,  and  must  thereafter  conduct  the 
business  of  such  corporation,  with  all  its  powers  and  privileges, 
and  subject  to  all  its  liabilities,  until  the  redemption  of  the  same, 
which  may  be  made  at  any  time  within  one  year  after  such  sale. 

right  to  put  him  to  labor.     This  would  be         2  Paschal's  Dig.  18G6,  p. 820,  arts.  4912, 

owning    materials,  merely  ;  the    iron  and  4914. 

timbers,  the    earth  and   masonry,  of  the         8  Code  and  Stat.  1876,  §§  5888,  5389, 

railroad  ;  or  the  hide  and  flesh  and  bones  5392,  5393.  The  same  BtatlUe  i-i  n  enacted 

of  the  horse."  in  Dakota  T.     Civil  Code  1877,  §§   442 

1   Vicksburg  &    Meridian  It.  B.  Co.  v.  447. 
McCutchen,  hi  .Miss.  645. 

407 


§  480.]  REMEDIES   AND   JURISDICTION   OF   COURTS. 

430.  Funds  in  possession  of  the  president,  officers,  and 
agents  of  a  railroad  company  are  not  subject  to  garnishment 
in  an  ordinary  action  by  a  creditor  against  the  company.1  Their 
possession  is  the  possession  of  the  company,  and  to  garnishee  them 
in  an  action  against  the  company  is  to  garnishee  the  debtor,  and 
not  a  creditor  of  the  debtor.  Such  a  proceeding  is  in  effect  an 
attempt  "  to  compel  the  corporation  to  pull  the  money  out  of  its 
ppcket."  2  Funds  in  the  possession  of  the  president  or  other  of- 
ficer of  a  corporation  authorized  to  receive  and  hold  them  for  the 
company  are  in  the  possession  of  the  company,  —  are  in  its  treas- 
ury, and  not  in  the  possession  of  the  officer  as  an  individual. 
"  The  servant  who  feeds,  waters,  and  curries  his  master's  horse, 
and  keeps  the  key  of  the  stable,  the  master  having  the  actual  and 
dominant  possession  and  control  ;  the  clerk  who  opens  and  shuts 
the  store  and  sells  the  goods,  subordinate  to  the  actual  possession 
of  the  merchant ;  the  treasurer  of  the  corporation  who  has  charge 
of  the  safe  and  the  moneys  therein,  and  receives  and  pays  out, 
under  the  immediate  direction  and  control  of  the  principal  officers, 
are  not  to  be  deemed  in  such  possession  and  control  of  the  proper- 
ties as  subjects  them  to  garnishment."  3 

i  Wilder  v.  Shea,  13  Bush  (Ky.),  128.  3  McGraw  v.  Memphis  &  Ohio  E.  E. 

See  §§  114-120.  Co.  5  Cold.  (Tenn.),  434,  439.     See   §§ 

2  Wilder  v.  Shea,  stipra,  per  Pryor,  J.  114-120. 
408 


CHAPTER   XIV. 

FORECLOSURE   PROCEEDINGS  UNDER   CORPORATE  MORTGAGES. 

I.  Parties  plaintiff,  431-437.  I  III.  Defences,  449-451. 

II.  Parties  defendant,  43S-448.  |  IV.  Decrees,  452-455. 

Isr  the  present  chapter  it  is  proposed  to  examine  only  such 
decisions  as  relate  directly  to  the  foreclosure  of  corporate  mort- 
gages. For  general  principles  governing  proceedings  in  equitable 
suits  of  foreclosure,  determining  the  parties  to  such  suits,  the 
pleadings  and  the  decrees,  reference  should  be  had,  if  there  be 
occasion,  to  general  treatises.1 

I.  Parties  Plaintiff. 

431.  A  mortgagee,  although  he  does  not  himself  own  any 
part  of  the  mortgage  debt,  the  mortgage  being  in  fact  made  to 
him  as  trustee  for  the  benefit  of  the  holders  of  certain  notes,  but 
not  expressing  the  trust  upon  its  face,  is  the  proper  party  to  en- 
force it  by  foreclosure  suit.2  He  not  only  holds  the  legal  title, 
under  which  he  could  maintain  an  action  to  recover  possession  of 
the  property  mortgaged  upon  condition  broken,  but  by  his  rela- 
tion to  the  holders  of  the  notes  he  is  a  trustee,  presumptively 
clothed  with  the  requisite  power  to  act  for  them  in  the  collection 
of  the  debt.  Whether  such  holders  be  numerous  or  not  he  may 
bring  suit  to  enforce  the  security  without  uniting  those  for  whose 
benefit  it  is  prosecuted. 

432.  A  single  bondholder,  unless  restrained  by  the  terms  of 
the  mortgage,  may  maintain  a  bill  in  equity  to  foreclose  a 
mortgage,  bringing  it  in  his  own  name,  but  for  the  benefit  "t  all 
other  bondholders  ns  well  as  of  himself.      In   this  respect  ii  makes 

1  Sec  Jones  on   Mortgages,   chs.    xxi.    29  Ohio  St.  880;  Coe  v.  Columbus,  Piqaa 

xxii.  §§  1367-1515.  &  lud.  K.  It.  Co.  10  Ohio  St.  872. 

2  Hayes  v.  Galion  Gai  Light  &  Coal  Co. 

Kill 


§  433.]  FORECLOSURE   PROCEEDINGS. 

no  difference  whether  the  bondholder  is  secured  by  a  mortgage 
deed  strictly  such,  where  the  mortgagee  holds  the  title  in  trust  for 
the  holders  of  such  of  the  bonds  as  he  has  transferred,  or  whether 
he  is  secured  by  a  trust  deed  in  the  usual  form,  where  a  trustee 
holds  the  title  for  the  benefit  of  all  the  bondholders.1 

Ordinarily  a  bondholder  secured  by  a  mortgage  to  trustees  is 
not  allowed  to  sue  the  corporation  with  respect  to  any  matter 
within  the  trust,  except  when  it  appears  that  the  trustees  refuse 
or  neglect  to  act,  or  have  assumed  a  position  prejudicial  to  the 
interests  of  the  bondholders,  or  there  is  a  vacancy  in  the  office.2 

433.  A  single  bondholder  may  insist  upon  a  foreclosure, 
although  the  mortgage  provides  for  a  foreclosure  by  the  trus- 
tee upon  request  of  the  majority  of  the  bondholders  secured 
by  the  mortgage.  Inasmuch  as  a  provision  in  a  railroad  mort- 
gage authorizing  the  trustee,  on  the  company's  default,  to  take 
possession  of  the  property,  and  upon  notice  to  sell  it,  is  a  cumu- 
lative remedy  which  does  not  affect  the  right  to  foreclose  by  bill 
in  equity,  a  provision  in  the  deed  authorizing  the  trustee,  upon 
request  of  a  majority  of  the  holders  of  bonds,  to  exercise  the 
power,  does  not  in  any  way  affect  the  right  of  a  single  bondholder, 
upon  default  of  the  company,  to  insist  upon  a  foreclosure  in  equity, 
at  least  for  the  amount  of  the  interest  overdue,  if  the  whole  prin- 
cipal debt  has  not  become  due  by  lapse  of  time,  or  by  virtue  of 
any  provision  of  the  mortgage.  This  point  is  illustrated  by  the 
case  of  Alexander  v.  Central  Railroad  of  Iowa,2  before  the  Circuit 
Court  of  the  United  States  for  the  District  of  Iowa.  This  com- 
pany had  executed  a  mortgage  containing  the  following  provision  : 
"  And  it  is  agreed,  in  case  of  the  default  of  the  payment  of  the 
semi-annual  interest,  as  above  provided,  that  said  trustee,  or  its 
successors,  is  hereby  expressly  authorized  and  empowered,  upon 
the  request  in  loriting  of  a  majority  of  the  owners  or  holders  of 
said  bonds,  to  enter  into  and  upon,  and  to  take  actual  possession  of 
all  the  property,  real  and  personal,  and  rights,  franchises,  and 

1  Mason  v.  York  &  Cumberland  R.  R.  459,  478  ;  Campbell  v.  Railroad  Co.  1 
Co.  52  Me.  82 ;  March  v.  Eastern  R.  R.     Woods,  368,  370. 

Co.  40  N.  H.  548,  566.  s  3  Dill.  487  ;  1   Cent.  L.  J.  543.     See, 

2  Knapp  v.  Railroad  Co.  20  Wall.  117;  also,  relating  to  the  same  case,  Farmers' 
Coal  Co.  v.  Blatchford,  1 1  Wall.  172,  177  ;  Loan  &  Trust  Co.  v.  Cent.  R.  R.  of  Iowa, 
Galveston  R.  R.  Co.  v.  Cowdrey,  11  Wall.  4  Dill.  533;  5  Cent.  L.  J.  56;   Sage  v. 


Same,  93  U.  S.  412. 


410 


PARTIES   PLAINTIFF.  [§  433. 

privileges  of  the  premises  hereby  conveyed,  and  each  and  every 
part  thereof,  and  by  their  agents  or  attorneys  have,  hold,  use,  and 
enjoy  the  same,  and  from  time  to  time  make  all  repairs  and  re- 
placements, and  all  useful  alterations,  additions,  and  improve- 
ments thereto,  as  fully  as  the  parties  of  the  first  part  might  have 
done  before  such  entry ;  and  to  collect  and  receive  all  tolls,  freight, 
incomes,  rents,  issues,  and  profits  of  the  same,  and  of  every  part 
thereof ;  and  the  said  trustee  and  its  successors  shall  and  may, 
and  hereby  is  expressly  authorized  and  empowered  to  sell  at  pub- 
lic auction,  to  the  highest  bidder,  the  entire  property,  real  and 
personal,  rights,  franchises,  and  privileges  conveyed."  And  it 
was  further  provided  that  in  case  the  company  should  make  de- 
fault in  the  payment  of  interest  on  any  bond  secured  by  the  mort- 
gage, then,  after  the  expiration  of  twelve  months  from  the  time  it 
became  due,  and  without  demand  or  notice,  at  th<f  election  or  op- 
tion of  a  majority  of  the  holders  of  said  bonds,  the  whole  principal 
sum  mentioned  in  each  and  all  of  the  said  mortgage  bonds  then 
outstanding  shall,  forthwith,  become  due  and  payable,  and  the  lien 
or  incumbrance  thereby  created  for  the  security  and  payment 
thereof  may  at  once  be  enforced. 

A  default  having  occurred  in  the  payment  of  interest,  certain 
bondholders  requested  the  trustee  in  the  mortgage,  the  Farmers' 
Loan  and  Trust  Company,  to  bring  a  suit  to  foreclose  the  mort- 
gage, and  upon  its  refusal  so  to  do  they  themselves  filed  a  bill  in 
equity  for  that  purpose  in  their  own  behalf,  and  for  all  other  bond- 
holders who  might  be  similarly  situated,  to  which  the  trustee 
was  made  a  party  defendant.  The  trustee  appeared  and  filed  an 
answer,  setting  up  that  a  majority  of  the  bondholders  had  never 
demanded  action  on  the  part  of  the  trustee,  and  that  it  was  will- 
ing to  submit  to  the  direction  of  the  court  as  to  its  duty  in  the 
premises,  and  to  become  plaintiff  if  the  court  should  so  order. 
The  railroad  company  demurred  to  the  bill,  on  the  ground  that 
under  the  provisions  of  the  deed  of  trust  there  could  be  do  fore- 
closure by  bondholders,  or  by  the  trustee,  unless  a  majority  pf  the 
bondholders  so  desired,  and  there  was  no  such  averment  in  the 
bill.  The  court,  however,  held  that  the  bill  was  properly  brought  ; 
but  if  the  plaintiffs  elected  to  dismiss  the  bill  as  to  the  trustee,  the 
might  be  allowed  to  become  a  party  plaintiff,  and  to  file  a 
bill  for  the  benefit  of  all  the  bondholders.  The  provisions  of  the 
mortgage  deed  did  not  restrict  the  right  of  any  coupon  holder  to 

'  111 


§  434.]  FORECLOSURE   PROCEEDINGS. 

foreclose  for  interest  after  a  default  for  the  requisite  time.  By 
the  terms  of  the  mortgage  the  whole  principal  would  not  become 
due  upon  a  default  in  the  payment  of  interest,  except  at  the  elec- 
tion of  a  majority  of  the  holders  of  the  bonds ;  and  so,  therefore, 
without  such  action  on  the  part  of  the  bondholders,  there  could  be 
no  foreclosure  in  equity  for  anything  more  than  the  overdue 
interest.  But  to  this  extent  any  one  of  the  bondholders  could 
invoke  the  remedy  in  equity  to  foreclose. 

Judge  Dillon,  of  the  Circuit  Court  of  the  United  States,  after 
noticing  that  the  power  of  sale  in  the  deed  of  trust  is  a  cumulative 
remed}7  for  the  benefit  of  mortgage  creditors,  and  does  not  exclude 
their  right  to  resort  to  the  judicial  tribunals  for  a  foreclosure, 
said:  "Provisions  in  an  instrument  of  this  character  limiting  the 
right  of  a  mortgage  creditor  to  resort  to  a  Court  of  Chancery  to 
foreclose  his  security  are  not  to  be  extended  beyond  the  fair 
meaning  of  the  language  used  ;  and  it  is  our  opinion  that  there 
is  no  restriction  in  the  deed  of  trust  before  us  upon  the  right  of 
the  coupon  holder  to  foreclose  for  interest  upon  default,  although 
a  majority  of  the  bondholders  do  not  unite  in  the  suit,  or  request 
the  trustee  to  bring  it.  The  provision  in  question  gives  a  major- 
ity of  the  bondholders,  on  default  of  the  payment  of  interest,  the 
option  or  election,  after  the  expiration  of  a  year  from  the  default, 
to  have  the  wliole  principal  sum  become  due  at  once,  and  the 
mortgage  security  enforced  accordingly.  This  is  not  inconsistent 
with  the  unabridged  right  of  any  coupon  holder  to  foreclose  for 
interest,  in  the  manner  sought  in  the  present  bill,  and  it  was  not 
necessary  that  a  majority  of  the  coupon  holders  should  unite  in 
bringing  the  bill,  or  in  a  request  to  the  trustee  to  bring  it.  As 
the  bill  alleges  that  the  trustee  refused  to  bring  suit,  the  bill  was 
properly  brought  in  the  name  of  the  plaintiffs,  for  themselves  and 
the  other  coupon  holders,  making  the  trustee  a  defendant.  If  the 
plaintiffs  elect  to  dismiss  the  bill  as  to  the  trustee,  we  will  allow 
the  trustee  to  become  a  party  plaintiff,  and  to  file  a  bill  for  all 
the  bondholders ;  but  it  would  be  anomalous  to  have  the  trustee 
on  the  record  both  as  defendant  and  plaintiff  in  the  same  proceed- 
ing. The  demurrer  of  the  railroad  company  to  the  bill  is  over- 
ruled." 

i 

434.  It  is  not  necessary  that  all  the  bondholders  should 
actually  join  in  the  suit.  —  When  a   foreclosure    suit  has  been 
412 


PARTIES   PLAINTIFF.  [§  434. 

commenced  by  bondholders  in  behalf  of  themselves  and  all  other 
bondholders  whose  bonds  are  secured  by  the  same  deed,  who 
choose  to  come  in  as  complainants  and  bear  their  share  of  the 
expenses  of  the  suit,  and  the  trustees  of  the  mortgage  are  made 
defendants,  it  is  not  necessary  that  all  the  bondholders  shall  be 
made  actual  parties,  especially  when  they  are  numerous,  and  many 
of  them  unknown.1  To  require  all  of  them  to  be  made  parties, 
and  in  the  case  of  the  death  of  any  that  the  suit  should  be  re- 
vived in  the  name  of  the  personal  representative  of  the  deceased 
party,  before  any  final  decree  could  be  rendered,  would  be  to  deny 
the  bondholders  any  relief.  The  rule  and  practice  of  courts  of 
equity  in  such  cases  is  that  the  case  may  proceed  when  the  court 
has  sufficient  parties  before  it  to  represent  all  the  adverse  inter- 
ests of  the  plaintiffs  and  defendants.  The  interests  of  the  bond- 
holders are  represented  by  the  actual  complainants,  and  by  the 
trustees  who  are  made  parties  defendant.  The  other  bondholders 
may  be  allowed  to  come  in  as  complainants,  or  may  propound 
their  claims  before  the  master. 

A  holder  of  part  of  the  bonds  secured  by  a  mortgage  of  prop- 
erty insufficient  to  satisfy  the  entire  mortgage  debt,  has  no  right 
to  appropriate  to  his  sole  benefit,  by  execution  and  sale,  the  prop- 
erty mortgaged  to  secure  all  the  bonds.  The  bondholders  have 
a  common  interest  in  the  security,  and  are  all  equally  entitled  to 
the  benefit  of  it ;  and  in  case  of  a  deficiency  of  the  fund  to  satisfy 
the  whole  of  the  debt,  a  distribution  must  be  made  in  equity 
among  all  the  holders  of  bonds  pro  rata?  To  permit  a  bond- 
holder to  proceed  at  law  for  the  collection  of  a  part  of  the  mort- 
gage debt  by  execution  against  the  mortgaged  property  would 
prevent  &  pro  rata  distribution  in  case  of  a  deficiency,  and  would 
give  him  an  inequitable  preference  over  his  fellow-bondholders.8 

A  single  bondholder  cannot  attach  and  apply  to  the  payment 
of  his  claim  any  part  of  the  property  mortgaged  to  pay  his  own 
bonds  and  others  secured  by  the  mortgage  without  alleging  and 
proving  that  the  other  debts  secured  by  the  mortgage  have,  been 

i  Mason  v.  York  &  Cumberland  R.  It.  447;  Campbell  v.  Railroad  Co.  1  Woods, 
Co.  52  Me.  B2  ;  March   v.  Eastern  R.  R.     3G8. 

Co.  40  N.  H.  548, 566  j  Wilmcr  v.  Atlanta        a  Pennock  v.  Coe,  23  How.  L17. 
&  Richmond  Air  Line  Ry.  Co.  2  Woods,        3  Fish  v.  N.  5  .  Water  ProoJ    Paper  Co. 

29  N.J.  Bq.  L6. 


§§  435,  436.]  FORECLOSURE    PROCEEDINGS. 

paid,  and  bringing  the  mortgage  trustees  or  other  holders  of  the 
legal  title  before  the  court.1 

435.  One  who  holds  bonds  of  a  railroad  company  as  col- 
lateral security  has  the  same  right  as  any  other  bondholder  to 
press  a  sale  of  the  mortgaged  property.2 

To  a  suit  by  bondholders  to  foreclose  a  mortgage,  the  mort- 
gagor may  plead  that  the  complainants  are  not  the  absolute 
owners  of  the  bonds,  but  hold  them  as  collateral  security  for  a 
debt  less  in  amount  than  the  money  due  on  the  bonds,  and  that 
the  assignor  should  be  made  a  party  to  the  bill.3 

In  a  suit  against  a  railroad  company  by  the  pledgees  of  its 
bonds  as  collateral  security  for  its  own  indebtedness  to  a  smaller 
amount,  a  decree  can  be  entered  for  only  the  amount  secured  by 
the  pledge.4 

436.  After  individual  bondholders  have  filed  a  bill  to  fore- 
close a  mortgage  in  behalf  of  themselves  and  all  others  in  like 
interest,  the  trustees  to  whom  the  mortgage  was  made  may 
come  in  and  ask  to  become  complainants  instead  of  defendants, 
and  their  request  will  generally  be  allowed  unless  it  appear  that 
they  have  adverse  interests  and  are  not  in  good  faith  fulfilling 
their  trust.  So  soon  as  they  are  admitted  as  complainants,  how- 
ever, they  have  control  of  the  suit,  and  are  charged  with  the  con- 
duct of  it.  The  only  standing  the  original  complainants,  the 
bondholders,  have,  must  arise  from  an  allegation  that  the  trustees 
were  derelict  in  their  duty ;  or  from  some  like  allegation  show- 
ing the  neglect  or  refusal  of  the  trustees  to  act.  When  the  trus- 
tees come  into  court,  deny  the  charge  of  neglect  or  unfaithfulness, 
and  ask  to  do  what  the  bondholders  allege  they  ought  to  do,  but 
were  unwilling  or  neglected  to  do,  and  are  allowed  to  become 
complainants,  they  then  become  masters  of  the  suit.5 

The  trustees  in  such  case  may  be  allowed  in  the  discretion  of 
the  court  to  dismiss  the  proceedings  commenced  by  the  bond- 
holders and  proceed  in  another  court.     Thus  a  bill  to  foreclose  a 

1  Martin  v.  Mobile  &  Ohio  R.  R.  Co.  7  4  Jesup   v.   City   Bank   of   Racine,   14 
Bush  (Ky.),  116.  Wis.  331. 

2  McCurdy's  Appeal,  65  Pa.  St.  290.  5  Richards   v.  Chesapeake  &  Ohio    R. 

3  Aekerson  v.  Lodi  Branch  R.  E.  Co.  R.  Co.  1  Hughes,  28.    See,  also,  Farmers' 
28  N.  J.  Eq.  542.  Loan  &  Trust   Co.  v.  Central  R.  R.  Co. 


of  Iowa,  11  West.  Jurist,  428. 


414 


PARTIES   PLAINTIFF.  [§  437. 

mortgage  made  by  the  Chesapeake  and  Ohio  Railroad  Company, 
brought  by  bondholders  in  the  Circuit  Court  of  the  United  States 
for  the  Eastern  District  of  Virginia,1  was  dismissed  at  the  request 
of  the  trustees  who  had  subsequently  been  admitted  as  complain- 
ant, in  order  that  they  might  be  allowed  to  proceed  in  the  courts 
of  the  State  of  Virginia,  in  which  they  had  commenced  proceed- 
ings, and  where,  as  they  alleged,  certain  difficulties  in  regard  to 
jurisdiction  which  arose  in  the  Circuit  Court  would  not  be  in  the 
way  of  their  proceedings  ;   and  where  they  would  have  other  ad- 
vantages in  prosecuting  the  suit.     All  the  bondholders  under  the 
mortgage  acquiescing  in  their  request,  with  the  exception  of  a  few 
holding  a  comparatively  small  amount,  the  Circuit  Court  declared 
that,  for  the  court  to  determine  that  the  trustees  shall  proceed  in 
that  court  and  not  elsewhere,  there  being  no  charge  of  duplicity 
or  fraud  on  their  part,  would  be  to  set  up  the  opinion  of  the  court 
as  to  what  the  best  interests  of  these  cestuis  que  trust  are  against 
those  of  themselves  and  of  the  trustees  who  are  legally  charged 
with  the  care  of  those  interests.     The  objection  to  the  original 
bill  in  this  case  being  in  large  part  on  account  of  the  absence  of 
proper  parties,  the  bondholders  who  objected  to  the  dismissal  of  the 
bill  asked  leave,  if  the  court  should  allow  the  motion  to  dismiss, 
to  file  a  new  bill,  which  should  include  all  the  proper  parties,  and 
should  relate  back  to  the  time  of  the  filing  of  the  original  bill. 
"A  fatal  objection  to  this  request,"  said  Judge  Bond,  "is,  that 
now  that  the  trustees  have  undertaken  by  legal  means  to  foreclose 
this  mortgage,  no  bondholder  has  a  right  to  proceed  in  his  own 
name  to  foreclose.     He  can  ask  the  aid  of  a  court  of  equity,  only 
on  the  ground  of  unfaithfulness,  neglect,  or  inability  on  the  part 
of  the  trustees.     Upon  due  consideration,  therefore,  the  court  will 
make  an  order  directing  the  receiver  to  settle  his  accounts  up  to 
a  day  aamed  therein,  and  to  make  a  report  thereof  to  the  court 
up  to  that  date,  whereupon  he  will  be  discharged,  and  the  com- 
plainants be  allowed  to  dismiss  their  proceedings  and  prosecute 
those  already  commenced    in    the  state  court."      In   this  opinion 
Chief  Justice  Waite  concurred. 

437.  When  a  railroad  company  mortgages  its  property  di- 
rectly to  all  its  bondholders  by  name,  to  secure  specifically  to 
each  the  amount  due  on  the  bonds  to  him,  no  one  bondholder, 

1   Bicbardl  v.  Chesapeake  &  Ohio  K.  II.  Co.  I  Hu 

415 


§  438.]  FORECLOSURE   PROCEEDINGS. 

even  when  professing  to  act  in  behalf  of  all  bondholders  who  may- 
come  in  and  contribute  to  the  expenses  of  the  suit,  can  proceed 
alone  against  the  company,  and  ask  a  sale  of  the  property.  It  is 
a  general  rule  both  at  law  and  in  equity,  that  a  suit  upon  a  writ- 
ten instrument  must  be  brought  in  the  name  of  all  persons  who 
are  parties  to  it  or  have  an  interest  in  it.  Then  if  it  appears  that 
the  mortgage  is  an  inadequate  security,  there  is  another  reason 
whv  one  bondholder  or  a  part  of  the  bondholders  cannot  proceed 
without  the  others.  In  such  case  it  is  the  interest  of  every  bond- 
holder to  diminish  the  claim  of  every  other  bondholder.  "  In  so 
far  as  he  succeeds  in  doing  that  he  adds  to  his  own  security. 
Each  holder,  therefore,  should  be  present,  both  that  he  may  de- 
fend his  own  claims  and  that  he  may  attack  the  other  claims 
should  there  be  occasion  for  it.  If  upon  a  fair  adjustment  of  the 
amount  of  the  debts  there  should  be  a  deficiency  in  the  security, 
real  or  apprehended,  every  one  interested  should  have  notice  in 
advance  of  the  time,  place,  and  mode  of  sale,  that  he  may  make 
timely  arrangements  to  secure  a  sale  of  the   property  at  its  full 

value."  1 

II.  Parties  Defendant. 

438.  The  bondholders  for  whose  benefit  a  mortgage  of  the 
property  and  franchises  of  a  railroad  company  has  been  made 
to  trustees  are  not  necessary  parties  to  a  bill  in  equity  brought  by 
the  trustees  against  the  company  to  foreclose  the  mortgage.2 

A  trustee  for  bondholders  represents  their  interests,  and  when 
made  a  party  to  a  suit  affecting  their  interests,  they  are  as  much 
bound  by  the  decree  rendered  in  the  suit  as  if  they  were  individu- 
ally made  parties  to  the  suit.  If  a  trustee,  who  is  made  a  party 
to  the  suit,  is  himself  a  bondholder,  he  cannot  afterwards  litigate 
the  same  subject  matter  in  his  individual  capacity.  If  he  owned 
the  bonds  at  the  time,  he  is  bound  because  he  was  representing 
himself.  If  he  has  bought  them  since  the  suit,  he  is  bound  as 
privy  to  the  person  who  was  represented.3 

The  bondholders  are  not  necessary  parties  whether  the  mort- 
gage constitutes  a  prior  or  subsequent  incumbrance,  or  whether 
the  trustees  be  complainants  or  defendants  in  the  suit.  Bond- 
holders are  privies  in  interest,  and  may  come  in  to  defend  pro  in- 

i  Railroad  Co.  v.  Orr,  18  Wall.  471.  3  Corcorau    v.    Chesapeake    &    Ohio 

2  Shaw  v.  Norfolk   County  R.  R.  Co.     Canal  Co.  94  U.  S.  741. 
5  Gray  (Mass.),  162. 

416 


PARTIES   DEFENDANT.  [§  439. 

teresse  suo,  but  their  rights  are  affected  by  a  decree  against  a 
trustee.  He  does  not  stand  in  the  attitude  of  a  stranger  claim- 
ing collaterally,  but  comes  in  under  the  mortgage.1 

439.  A  state  -which  has  indorsed  the  bonds  of  a  railroad 
company,  and  has  a  statutory  lien  upon  the  property  of   the 
company  for  their  payment,  has  an  interest  in  a  suit  instituted  by 
the  holders  of  such  bonds  praying  that  they  may  be  subrogated  to 
the  lien  and  rights  of  the  state,  and  that  the  lien  be  established, 
and  should  be  made  a  party  if  possible.     But  the  fact  that  the 
state  cannot  be  made  a  party  is  a  sufficient  reason  for  excusing 
her  absence  from  the  suit.2     If  the  suit  be  in  the  Circuit  Court 
of  the  United  States  within  the  state  interested,  and  against  a 
corporation  organized  under  the  laws  of  that  state,  while  it  is  im- 
possible to  make  the  state  a  defendant,  she  cannot  even  by  her 
own  consent  be  made  a  party  complainant,  for  that  would  oust 
the  jurisdiction  of   the  court.3     "  Suppose,"  said  Judge  Woods, 
"  we  turn  the  complainants  out  of  this  court  because  the  state  is 
not  a  party.     If  they  go  into  the  state  court,  they  are  met  by  the 
same  difficulty,  for  the  state  will  not  allow  herself  to  be  sued  in 
her  own  courts.     Can  it  be  possible  that  these  complainants  are 
without  remedy  against  the  railroad  company  because  their  bonds 
are  indorsed  by  the  plighted  faith  of  the  State  of  Alabama?     It 
would  be  a  reproach  to  the  administration  of  justice  to  so  hold." 
The    complainants  do  not  ask  any  relief   against  the  state,  but 
only  a  decree  against  the  railroad  company,  for  the  unpaid  inter- 
est upon  the  bonds  and  for  a  sale  of  the  property  pledged  as  se- 
curity.    Although  the  state  is  interested  in  having  the  property 
fairly  applied  to  the  extinguishment  of  the  security,  there  is  no 
reason  why  she  must   necessarily  be  made  a  party  to  a  suit  in 
which  no  decree  is  sought  against  her.     "The  indorser  of  a  note 
secured  by  a  mortgage  is  not  a  necessary  party  to  a  suit  to  fore- 
close tin-  mortgage.     If  the  state  has  paid  any  interest  on  tl 
bonds,  and  is  thereby  entitled  to  any  purl   of  the  proceeds  of  the 
mortgaged  property,  she  can  propound  her  claim  before  the  maa- 

1  Board  of  Supervisors  of  [owa  County        -  Davis  /■.  Gray,  16  Wall.  203,  220. 
r.    Mineral  Poinl   l:.  R,  '  !o.  24  We.  93;        ■■  Young  v.  Montgomery  &  Eufaula  R. 
McElrath  v.  Pittsburg  &  Steubenville  R.     I;.  Co.  -j.  Wood 
B  Co  66   Pa.  Si    37  ;  Campbell  <■.  Rail- 
road C<>.  l  Woods,  368. 

27  H7 


§§  440,  441.]  FORECLOSURE   PROCEEDINGS. 

ter,  and  it  will  be  allowed."  Neither  is  the  fact  that  the  state 
cannot  be  sued  any  reason  why  the  holders  of  the  bonds  should 
not  be  subrogated  to  the  rights  of  the  state  and  have  the  benefit 
of  the  security.  Subrogation  is  an  equitable  principle  and  is  re- 
sorted to  in  order  to  prevent  a  failure  of  justice. 

440.  "Whether  the  United  States  can  compulsorily  be  made 
a  defendant  in  a  suit  to  foreclose  a  mortgage  on  a  railway  upon 
which  it  holds  a  lien  or  mortgage  is  an  unsettled  question  ; 1 
though  Mr.  Justice  Grier,  in  the  Circuit  Court  of  the  United 
States,  has  held  that  a  mortgagee  may  have  an  effectual  decree  of 
foreclosure  where  the  United  States  is  the  owner  of  the  equity  of 
redemption,  on  a  notice  given  in  such  manner  as  the  court  may 
prescribe,  if  the  land  be  not  held  for  government  purposes.2 

441.  A  subsequent  mortgagee  not  made  a  party  to  a  bill  to 
foreclose  a  prior  mortgage  is  unaffected  by  a  sale  under  a  decree 
rendered  in  such  suit,  and  consequently  he  cannot  have  an  in- 
junction to  restrain  such  sale.  He  may  redeem  at  any  time  by 
tendering  the  amount  due  ;  and  if  only  the  interest  on  the  prior 
mortgage  is  due  he  may  redeem  on  tendering  that.  The  Jackson- 
ville, Pensacola,  and  Mobile  Railroad  Company  issued  bonds  under 
the  Internal  Improvement  Act  of  the  State  of  Florida,  which  the 
trustees  of  the  fund  guaranteed  upon  the  condition  provided  by 
the  act,  that  the  bonds  should  be  a  first  lien  on  the  road,  and 
on  the  failure  of  the  company  to  provide  and  pay  the  interest, 
and  one  per  cent,  per  annum  for  sinking  fund,  it  should  be  the 
duty  of  the  trustees,  after  thirty  days  from  default,  to  take  pos- 
session of  the  road  and  property,  and  advertise  and  sell  it  to  the 
highest  bidder,  and  apply  the  proceeds  to  purchasing  and  cancel- 
ling outstanding  bonds  of  the  company,  or  incorporate  them  with 
the  sinking  fund.  Default  was  made,  and  the  trustees  sold  the 
railroad  for  a  sum  sufficient  to  retire  the  guaranteed  bonds  of  the 
company  ;  but  the  purchasers,  after  paying  a  portion  of  the  pur- 
chase money  with  which  a  portion  of  these  bonds  were  retired, 
managed  to  get  a  deed  of  the  property  and  evaded  or  failed  to 
pay  the  balance.  The  holders  of  some  of  the  outstanding  bonds 
then  brought  a  bill  against  the  holders  of  the  property  on  the 

1  Meier  v.  Kansas  Pacific  Ry.  4  Dill.  2  Elliot  v.  Van  Voorst,  3  Wall.  Jun. 
378.  299. 

418 


PARTIES  DEFENDANT.  [§  442. 

equity  of  the  vendor's  lien,  to  compel  the  payment  of  the  balance 
of  the  purchase  money,  and  obtained  a  decree  and  execution.  A 
holder  of  second  mortgage  bonds  of  the  company,  who  was  not 
made  a  party  to  either  the  suit  to  foreclose  the  lien  of  the  guar- 
anteed bonds,  or  to  the  suit  by  the  holders  of  such  bonds  to  ob- 
tain payment  of  the  balance  of  the  purchase  money,  filed  a  bill  to 
enjoin  the  sale.  He  claimed  among  other  things  that  the  princi- 
pal of  the  first  mortgage  bonds  was  not  due  at  the  time  of  the 
sale  by  the  trustees  of  the  improvement  fund,  and  that  the  second 
mortgagees  ought  to  have  the  privilege  of  redeeming  ;  but  as  he 
was  not  injured  by  the  sale  already  had,  and  could  not  be  injured 
by  the  proposed  sale,  his  prayer  was  denied.1 

442.  Subsequent  judgment  creditors.  —  A  mortgage  or  judg- 
ment prior  in  point  of  time  is  paramount  to  a  subsequent  judg- 
ment which  is  first  enforced  ;  and  if  it  be  enforced  by  a  bill  in 
equity  to  which  the  owner  of  the  second  judgment,  or  of  the  title 
acquired  under  it,  is  not  made  a  party,  such  junior  judgment  cred- 
itor, or  the  purchaser  under  his  execution,  would  have  the  right 
to  redeem  even  after  the  statutory  period  of  redemption  had  ex- 
pired, because  his  rights  would  not  be  cut  off  by  a  foreclosure 
suit  to  which  he  was  not  made  a  party.     This  point  is  illustrated 
by  one  phase  of  the  litigation  in  respect  to  the  La  Crosse  and 
Milwaukee   Railroad  Company,  afterwards    the    Milwaukee    and 
Minnesota  Company,  and  the  Milwaukee  and  St.  Paul  Railway 
Company.2     Without  following  in  detail  the  complicated  facts  of 
the  case,  the  legal  point  is  made  clear  by  the  illustrations  and  rea- 
soning of  Mr.  Justice  Dyer.     "  Suppose  a  second  mortgagee  fore- 
closes his  mortgage  and  takes  title  under  his  foreclosure  sale,  but 
does  not  take  possession.     Suppose  then  a  prior  mortgagee  fore- 
closes his  mortgage,  does  not  make  the  second  mortgagee  a  party, 
takes  title  under  his  foreclosure  sale  and  gets  possession,  who  has 
the  paramount  legal  title  ?     Clearly  the  prior  mortgagee,  but  the 
second  mortgagee's  right  of  redemption  is  not  cut  off,  because  he 
was  not  ;i  party  to   the   proceeding.      Let   us  follow  it  Further. 
Suppose    tin:  prior  mortgagee  forecloses    his  mortgage,  does    not 
mako  a  second  mortgagee  a  party,  and  gets  title  under  ;i  fore- 

1  Searles    >■.  Jacksonville,  Pcnsacola  &     Co.  7  Hiss.  7.'i.     And  Bee  Railroad  Co.  v. 
Mobile  R.  R.  <'"•  '-i  Woods,  021.  Jamos,  G  Wall.  7.r>o;  Bronson  v.  La  Crosse 

2  Howard  v.  Milwaukee  ft  Si.  Paul  Kv.     &  Milwaukee  It.  It.  ( '<>.  '-'  Wall.  28& 

41(J 


§  443.]  FORECLOSURE  PROCEEDINGS. 

closure  sale.  The  second  mortgagee  is  in  possession  holding  title 
under  a  foreclosure  of  his  mortgage.  The  paramount  title  is 
again  in  the  prior  mortgagee,  but  he  cannot  have  a  writ  of  assist- 
ance or  other  process  in  his  foreclosure  proceeding  against  the 
second  mortgagee  to  get  possession  of  the  premises,  because  that 
second  mortgagee  was  not  a  party  to  his  suit.1  The  equity  of  re- 
demption of  that  mortgagee  is  not  cut  off,  and  if  the  prior  mort- 
gagee would  get  possession,  in  case  the  second  mortgagee  does  not 
redeem,  he  must  bring  ejectment.  I  mention  these  only  as  illus- 
trations of  the  general  principle.  Now  a  judgment  creditor  with 
a  posterior  lien  issues  execution,  sells  the  property,  and  takes  title. 
A  prior  judgment  creditor  prosecutes  his  bill  in  equity  to  enforce 
the  lien  of  his  judgment.  The  party  in  possession  is  sole  defend- 
ant in  the  bill.  A  decree  is  rendered,  enforcing  not  any  lien 
created  by  the  decree,  but  the' lien  of  the  judgment  as  of  the  date 
of  the  judgment,  and  a  sale  is  ordered.  The  sale  transpires,  and 
then  a  contest  arises  upon  the  legal  titles  held  respectively  by  the 
purchaser  under  the  decree  and  the  purchaser  under  the  execution 
sale  upon  the  subsequent  judgment.  I  cannot  come  to  any  other 
conclusion  than  that  the  purchaser  under  the  decree  founded  upon 
the  first  judgment  in  this  state  of  the  case  takes  the  paramount 
legal  title.  True,  the  plaintiff  was  not  a  party  to  the  bill  tiled 
upon  the  prior  judgment,  but  the  omission  to  make  him  a  party 
did  not  give  him  superior  legal  rights.  For  rank  of  legal  title  we 
must  look  to  the  judgments  from  which  the  respective  titles  flow." 

443.  As  a  general  rule  it  is  neither  necessary  nor  proper  to 
make  prior  mortgagees  parties  to  a  foreclosure  suit.2  Of  course 
if  the  prior  mortgagees  assent  to  a  sale  of  the  entire  property,  and 
such  a  sale  is  desired,  they  must  be  made  parties  to  the  bill.  It 
may  sometimes  be  necessary  to  make  prior  mortgagees  parties 
in  order  to  settle  the  amounts  for  which  their  mortgages  are  liens 
upon  the  property,  as  otherwise  a  purchaser  at  the  foreclosure  sale 
cannot  know  before  bidding  what  the  value  of  the  property  to  be 
sold  may  be ;  and  the  complainants  in  the  bill  should  put  them- 
selves in  a  position  to  inform  purchasers  what  is  the  actual  amount 

1  See,  on  this  point,  Terrell  v.  Allison,  v.  Page,  2  Sim.  471  ;  Richards  v.  Cooper, 
21  Wall.  289  ;  Hickey  v.  Stewart,  3  How.  5  Beav.  304  ;  Payne  v.  Hook,  7  Wall.  432  ; 
750.  Jerome  v.  McCarter,  94  U.  S.  734,  736. 

2  2  Jones  on  Mortgages,  §   1439 ;  Rose 

420 


PARTIES   DEFENDANT.  [§  444. 

of  prior  incumbrances.1  In  the  case  of  ordinary  mortgages,  it  is 
seldom  necessary  to  resort  to  any  legal  proceeding  to  determine 
the  amount  of  the  prior  incumbrances  ;  but  with  railroad  mort- 
gages this  necessity  more  often  arises,  especially  when  there  have 
been  successive  mortgages  of  portions  of  a  road  and  afterwards 
of  the  entire  road  or  of  a  consolidated  road  ;  or  when  other  com- 
plications have  arisen  to  render  the  amounts  for  which  the  mort- 
gages are  valid  liens  uncertain. 

To  make  the  prior  mortgagee  a  party,  unless  there  is  a  volun- 
tary appearance,  there  must  be  a  service  of  process  upon  him.  A 
railroad  mortgage  is  usually  made  to  trustees,  who  represent  the 
bondholders  in  all  matters  affecting  their  rights  in  court.  But 
sometimes  the  bondholders  are  themselves  the  mortgagees,  and  in 
such  case  service  of  process  must  be  made  upon  the  individual 
bondholders  in  order  to  make  them  parties  defendant.  No  gen- 
eral notice  calling  on  them  to  present  their  claims  will  make  them 
parties  or  bind  them.  If  they  are  represented  in  the  case  by 
trustees,  then  a  notice  calling  upon  them  to  present  their  bonds 
before  the  master  would  be  binding.  But  if  they  are  in  no  way 
represented  in  the  suit,  their  rights  are  not  affected  by  any  de- 
cree that  may  be  rendered  in  the  case.2 

So  loner  as  a  doubt  exists  as  to  the  character  and  extent  of  a 
mortgage  lien,  a  court  of  equity  will  not  expose  the  property  to 
sale  under  it,  if  the  interest  be  capable  of  being  reduced  to  a  cer- 
tainty.3 In  like  manner  where  the  effort  of  the  junior  mortgagee 
is  to  obtain  a  sale  of  the  entire  property  or  estate,  and  not  merely 
of  the  equity  of  redemption,  there  is  reason  for  making  the  prior 
incumbrancers  parties,  for  they  have  an  immediate  interest  in  the 
decree.4 

A  decree,  declaring  a  mortgage  to  be  a  first  lien  upon  the  prop- 
erty and  franchises  of  a  railroad  company,  gives  it  no  precedence 
over  the  prior  lien  of  a  party  who  had  no  notice  of  the  proceed- 
ings and  was  not  a  party  nor  privy  to  the  decree.5 

444.  Upon  the  foreclosure  of  a  mortgage  upon  a  distinct 

1  Richards  >■.  Chesapeake  &  Ohio  II.  B.  Canal,  K.  B.  &  [ron  I  !o.  I  <  lent.  I..  .1.  127  : 
(',,.  i  Bughes,  28,  •'!.->.  Jerome  v.  McCarter,  94  U.  8.  784. 

-  Ebung  t;.  Montgomery  &  Euf aula  R.  4  Per  Strong,  J.,  in  Jerome  v.  McCarter, 
R,  Co.  2  Woods,  606,  per  Woods,  J.  tupra. 

>;  Sutherland   v.   Lake    Superior   Ship        '■>  Pittsburg,  Cincinnati  &  St.  Louis  Kj. 

Co.  v.  Marshall,  85  Pa.  St.  187. 

421 


§§  445,  446.]  FORECLOSURE   PROCEEDINGS. 

portion  of  a  railroad,  the  mortgagee  of  another  distinct  portion 
is  not  a  necessary  party.  When  the  mortgagees  of  distinct  divis- 
ions of  the  road  both  claim  the  same  property,  as  for  instance  the 
machinery,  rolling  stock,  franchises,  and  privileges  of  the  entire 
road,  the  question  what  the  mortgages  cover  is  one  which  cannot 
be  determined  in  a  suit  for  foreclosure  brought  by  one  of  the 
mortgagees.1 

445.  Individual  stockholders  are  not  generally  allowed  to 
become  parties  to  a  foreclosure  suit  against  a  raih'oad  company. 
In  a  special  case,  however,  where  there  is  an  allegation  that  the 
directors  fraudulently  refused  to  attend  to  the  interests  of  the  cor- 
poi'ation,  a  court  of  equity  will,  in  its  discretion,  allow  a  stock- 
holder to  become  a  party  defendant,  for  the  purpose  of  protecting 
his  own  interests  against  unfounded  or  illegal  claims  against  the 
company  ;  and  he  will  also  be  permitted  to  appear  on  behalf  of 
other  stockholders  who  may  desire  to  join  him  in  the  defence.2 
"But  this  defence,"  says  Mr.  Justice  Nelson,  "is  independent  of 
the  company  and  of  its  directors,  and  the  stockholder  becomes  a 
real  and  substantial  party  to  the  extent  of  his  own  interests  and  of 
those  who  may  join  him,  and  against  whom  any  proceeding,  order, 
or  decree  of  the  court  in  the  cause  is  binding,  and  may  be  enforced. 
It  is  true,  the  remedy  is  an  extreme  one,  and  should  be  permitted 
by  the  court  with  hesitation  and  caution  ;  but  it  grows  out  of  the 
necessity  of  the  case  and  for  the  sake  of  justice,  and  may  be  the 
only  remedy  to  prevent  a  flagrant  wrong." 

The  stockholders  of  a  corporation  need  not  be  individually 
made  parties  to  a  suit  by  its  creditors  to  obtain  satisfaction  out  of 
surplus  proceeds  of  a  foreclosure  sale,  where  the  stockholders  are 
represented  both  by  the  corporation  and  by  a  committee  of  their 
own.3 

446.  Where  a  stockholder  may  intervene.  —  After  a  suit  in 
equity  has  been  properly  instituted  against  a  railroad  company, 
its  officers  enjoined  and  a  receiver  appointed,  a  decree  pro  con- 
fesso  entered,  and  an  authentic  report  of  the  facts  made  to  the 
court,  which  has  thereupon  ordered  a  sale  of  the  property  of  the 

1  Bronson  v.  Railroad  Co.  2  Black,  524.         3  Railroad  Co.  v.  Howard,  7  Wall.  392. 

2  Bronson  v.  La  Crosse   &  Milwaukee 
R.  R.  Co.  2  Wall.  283. 

422 


PARTIES   DEFENDANT.  [§  446. 

eompar^,  an  individual  stockholder  cannot  be  permitted  to  inter- 
vene in  the  suit  and  file  a  cross-bill  in  the  cause  on  a  general 
charge  of  fraud  and  collusion  on  the  part  of  the  receiver,  and  an 
erroneous  judgment  on  the  part  of  the  court  in  making  the  order. 
The  receiver  of  the  Memphis,  El  Paso,  and  Pacific  Railroad  Com- 
pany reported,  among  other  things,  that  prior  to  the  late  civil 
war  the  company  had  surveyed  a  route  from  the  eastern  boun- 
dary of  Texas  to  El  Paso,  and  had  graded  about  sixty-five  miles 
of  its  road,  but  had  not  paid  the  contractor  ;  that  after  the  war, 
about  twenty  or  twenty-five  miles  of  road  had  been  graded,  about 
three  miles  of  track  had  been  laid  down,  and  loose  rails  had 
been  dropped  along  the  line  for  a  few  miles  further.  "  Ten  loco- 
motives, purchased  in  France,  together  with  a  lot  of  about  one 
hundred  and  twenty  tons  of  railroad  iron,  had  been  detained  at 
New  Orleans  for  non-payment  of  duties,  which,  in  the  case  of  the 
locomotives,  exceeded  their  value.  The  other  railroad  iron  had 
been  sold  or  attached  in  New  York  for  claims  against  the  com- 
pany. This,  from  the  report  of  the  receiver,  seemed  to  have 
been  the  whole  extent  of  the  real  operations  of  the  company  in 
the  construction  of  its  vast  work  across  the  whole  northern  por- 
tion of  Texas,  an  extent  of  nearly  a  thousand  miles,  and  in  the 
accomplishment  of  this  result,  or  at  least  so  much  of  it  as  had 
been  performed  since  the  close  of  the  war,  there  had  been  issued 
forty  millions  of  stock  and  about  thirteen  millions  of  bonds  and 
land  certificates."  Nothing  else  remained,  as  the  result  of  this 
vast  issue  of  securities,  which  the  receiver  could  lay  his  hands 
on  except  a  few  thousand  shares  of  stock  in  two  other  railroads, 
and  a  residuum  of  less  than  three  hundred  thousand  dollars  of 
cash  assets  accruing  from  the  sale  of  land  grant  bonds  in  France 
to  the  amount  of  over  $5,000,000,  under  a  representation  and 
pledge  that  the  money  should  be  devoted  to  the  construction  of 
the  road,  so  as  to  secure  the  grant  of  lands  which  formed  the 
basis  of  the  mortgages  and  the  only  security  for  the  payment  of 
the  bonds.  "A  more  utterly  fraudulent  concern,  a  more  empty 
bubble  of  speculation,  is  rarely  to  be  met  with  in  this  highly  spec- 
ulating and  fraudulent  age,"  was  the  comment  of  the  courl  upon 
this  humiliating  revelation  of  the  facts  of  the  case.  And  yet  it. 
appeared  that  the  franchises  and  rights  to  grants  of  land  belong- 
ing to  the  organization  would  be  of  much  value  in  the  hands  of 
an  honest  and  energetic  organization;  and   the   receiver   reported 

423 


§  446.]  FORECLOSURE  PROCEEDINGS. 

an  agreement  which  could  be  effected  with  a  new  company  which 
would  have  .the  effect  of  securing  the  ultimate  payment  of  the 
debts  ami  obligations  of  record  of  the  defendant  company.  This 
proposition,  after  being  taken  under  consideration  by  the  court 
and  modified  in  some  particulars,  was  approved,  and  the  receiver 
was  authorized  to  carry  it  into  execution. 

At  this  stage  of  the  proceedings  certain  officers  and  stockhold- 
ers of  the  company  appeared  and  desired  to  be  allowed  to  become 
parties  to  the  suit,  and  to  intervene  for  their  respective  interests. 
The  order  authorizing  the  receiver  to  effect  the  proposed  sale  was 
suspended  until  the  interveners  could  formally  present  their  case 
by  petition  or  cross-bill,  and  be  heard.     The  complainants  in  the 
suit  and  the  receiver  thereupon  applied  for  a  rule  to  show  cause 
why  such  order  should  not  be  vacated  and  set  aside,  and  this  was 
the  question  before  the  court  in  the  present  case.     The  petitioners 
objected  to  the  proposed  sale,  and  made  general  charges  of  fraud 
and  collusion  on  the  part  of  the  receiver.     But  the  court  held 
that  individual  stockholders  could  not  be  allowed  to  intervene  to 
set  aside  the  proceedings,  or  to  interpose  obstacles  to  the  progress 
of  the  suit.1     Mr.  Justice  Bradley,  of  the   Circuit   Court  of   the 
United  States,  said  :     "  Rival  creditors,  by  proceedings  before  a 
master,  may   control  the   priority  of   their  respective  liens,  and 
creditors  or  stockholders  may  contest  the  validity  of  claims  of 
other  creditors  and  stockholders,  but  all  in   subordination   to   the 
general  object  and  purpose   of  the  suit ;  to  obtain  administration 
of  the  company's  assets  and  property.     To  be  allowed  to  inter- 
vene as  general  defendants  and  contestants  is  another  and  differ- 
ent thing.     This  can  be  admitted  only  upon  the  ground  before 
referred  to,  to  wit :  having  an  interest  in   the  results  as  a  stock- 
holder or  otherwise,  and  being  able  to  show  fraud  and  collusion 
between  the  plaintiffs  in  the  suit  and  the  officers  of  the  company 
having  charge  of  its   interests.     A  suggestion,  in  the  progress  of 
the  suit,  that  an  officer  of  the   court  is   disposed  to  act  fraudu- 
lently, or  that  the  court  has  made   an  injudicious  or  erroneous 
order,  will  not  be  a  sufficient  ground  to  allow  such  a  party  to  in- 
tervene.    Indeed,   it  is  questionable  whether,  in   any  case  where 
a  suit  is  properly  instituted  against  a  corporation,  a  stockholder  of 
that  corporation  can,  even  on  a  suggestion  of  fraud  on  the  part  of 
its  officers,  come  in  by  way  of  intervention  as  party  to  that  suit, 
i  Forbes  v.  Memphis,  El  Paso  &  Pacific  R.  R.  Co.  2  Woods,  323. 

424 


PARTIES   DEFENDANT.  [§  446. 

and  seek  to  defend  or  control  the  proceedings.      An    original  bill 
would  rather  seem  to  be  the  proper  mode  of  proceeding. 

"  A  commercial,  or  other  business  corporation,  is  constituted  for 
the  specific  purpose  of  suing  and  being  sued,  granting  and  receiv- 
ing, buying  and  selling,  and  doing  other  business  in  a  corporate 
name  and  capacity,  totally  distinct  from  that  of  any  or  all  of  its 
members  considered  as  individuals.  A  corporation  is  a  person. 
Its  property  is  not  the  property  of  its  stockholders.  Its  rights  are 
not  their  rights.  They  have  only  an  indirect  interest  therein. 
The  rights  of  a  stockholder  are  to  meet  at  stockholders'  meetings, 
to  participate  in  the  profits  of  the  business,  and  to  require  that 
the  coi-porate  property  and  funds  shall  not  be  diverted  from  their 
original  purpose.  If  the  company  become  insolvent,  it  is  the 
right  of  the  stockholders  to  have  the  property  applied  to  the 
payment  of  its  debts.  I  do  not  know  of  any  other  rights,  except 
incidental  ones,  subsidiary  or  auxiliary  to  these.  Of  course,  a 
stockholder  has  ordinarily  a  right  to  a  certificate  for  his  stock,  to 
transfer  it  on  the  company's  books,  and  to  inspect  these  books. 
For  the  invasion  of  these  rights  by  the  officers  of  the  company,  he 
may  sue  at  law  or  in  equity,  according  to  the  nature  of  the  case. 
But  all  remedies  for  injuries  to  the  property  or  rights  of  the  com- 
pany must  be  prosecuted  in  the  name  of  the  company,  and  all 
demands  against  the  company  must  be  prosecuted  against  the 
company  by  name,  unless  its  officers  or  agents,  by  fraud  and  mis- 
representation, have  rendered  themselves  personally  liable.  A 
stockholder,  in  his  character  of  stockholder,  cannot  sue,  nor,  un- 
less specially  made  liable  by  the  charter,  can  he  be  sued  for  any 
of  the  company's  transactions.  There  is  one  case,  and  one  only, 
in  which  he  can  interpose,  and  that  is  where  the  officers  and  man- 
agers of  the  company,  by  fraud  and  collusion  with  third  persons, 
are  sacrificing,  or  are  about  to  sacrifice  and  betray  the  interests  of 
the  corporation.  For  such  breach  of  trust  and  conspiracy  he  can 
call  the  guilty  parties  to  an  account  in  a  court  of  equity.  In  the 
case  before  the  court,  the  complainants  might  possibly  have  held 
tin-  officers  and  agents  of  the  company  personally  Liable  for  the 
frauds  and  misrepresentations  charged  against  them.  But  the 
.siid  officers  and  agents  were  clothed  with  all  the  authority  and 

power   of    the   coii)!. ration,   and    negotiated    and    operated    in    its 
name,  and    issued   its  obligations  upon  its  corporate  credit,  and  in 

every  official  way  involved  and  pledged  its  corporate  liability,  and 

425 


§§  447,  448.]  FORECLOSURE   PROCEEDINGS. 

beino-  the  legal  representatives  of  the  corporation,  placed  before 
the  world  as  such  by  the  corporation,  the  parties  injured  had  a 
perfect  rio-ht  to  proceed  against  the  corporation  for  redress.  It 
cannot  be,  and  is  not  seriously  pretended,  that  the  principal  com- 
plainants in  the  case,  the  trustees  of  the  land  grant  mortgages  and 
bondholders,  are  acting  in  collusion  with  the  officers  of  the  com- 
pany, or  that  they  have  any  other  object  in  view  than  the  pro- 
tection and  security  of  the  bondholders,  who,  it  is  admitted,  have 
been  most  outrageously  defrauded  out  of  their  money."  The  ad- 
mission of  a  stockholder  to  become  a  party  defendant  in  any  case 
where  he  is  not  made  so  by  the  bill,  being  a  matter  of  discretion 
with  the  court,  to  be  exercised  with  caution,  and  only  as  an  ex- 
treme remedy,  the  court  did  not  deem  it  necessary  to  depart  from 
the  general  rule  in  this  case,  where  the  interests  of  all  parties, 
and  especially  of  the  bond  fide  creditors  of  the  corporation,  were 
obviously  coincident  with  the  objects  of  the  suit,  and  the  order  of 
sale  which  had  already  been  made. 

447.  Adverse  interests  as  between  co-defendants  may  be 
passed  upon  and  decided;  and  parties  are  often  made  defendants 
because  they  will  not  join  as  plaintiffs,  and  are  yet  necessary  par- 
ties to  the  suit,  in  order  that  they  may  be  bound  by  the  decree. 
Having  in  this  way  an  opportunity  of  asserting  their  rights,  they 
are  concluded  by  the  decree  as  far  as  it  affects  rights  passed  upon 
by  the  court.1 

When  a  right  of  priority  is  in  dispute  it  ought  to  be  settled  be- 
fore a  sale,  so  that  the  party  holding  the  first  incumbrance  can 
bid  upon  the  property  up  to  the  amount  of  his  claim.2 

448.  It  is  a  general  rule  that  strangers  to  a  cause  cannot 
be  heard  in  it  either  by  petition  or  motion.  Their  remedy  is  by 
original  bill.  But  there  is  an  exception  to  the  rule  as  regards 
creditors  .who  are  allowed  to  prove  debts,  and  persons  belonging 
to  a  class  on  whose  behalf  a  suit  is  brought,  as  for  instance  bond- 
holders for  whom  mortgage  trustees  have  brought  an  action  for 
foreclosure.  Such  persons  are  regarded  as  quasi  parties,  and  of 
course  have  a  standing  in  court.3 

1  Corcoran  v.  Chesapeake  &  Ohio  Canal  2  Campbell  v.  Texas  &  New  Orleans  R. 
Co.  94  U.  S.  741.  R.  Co.  2  Woods,  263. 

8  Anderson  v.  Jacksonville,  Pensacola& 
426  Mobile  R.  R.  Co.  2  Woods,  628. 


DEFENCES.  [§§  449-451. 

III.  Defences. 

449.  In  general.  —  In  a  bill  to  foreclose  a  mortgage  given  to 
secure  negotiable  railroad  bonds,  as  against  bond  fide  purchasers 
of  the  bonds  for  value,  no  other  or  further  defences  to  the  mort- 
gage are  allowed  than  would  be  allowed  were  the  action  brought 
in  a  court  of  law  upon  the  bonds.  Such  bondholders,  in  this  re- 
spect, stand  in  the  same  position  as  bond  fide  assignees  for  value 
and  before  maturity  of  negotiable  promissory  notes.1 

450.  A  junior  mortgagee  cannot  deny  the  validity  of  a  prior 
mortgage  which  he  has  assumed.  —  Where  a  mortgage  of  a 
railroad  is  made  in  express  terms  subject  to  a  prior  mortgage  of 
the  same  property,  securing  bonds  negotiable  in  form,  and  which 
have  in  fact  passed  into  circulation  before  the  making  of  the 
junior  mortgage,  the  junior  mortgagees,  and  all  parties  claiming 
under  them,  are  estopped  from  denying  the  amount  or  the  va- 
lidity of  such  bonds.2 

451.  Subsequent  contracts  of  the  company.  —  Until  a  mort- 
gagee takes  possession  under  his  mortgage,  or  files  a  bill  to  fore- 
close it,  and  obtains  the  appointment  of  a  receiver,  he  is  in  no  way 
responsible  for  the  dealings  of  the  mortgagor  with  third  persons, 
such  for  instance  as  the  leasing  of  a  railroad  which  is  the  subject 
of  the  mortgage,  although  the  lease  be  fraudulent  against  the 
company.  Such  dealings,  after  the  execution  of  the  mortgage, 
cannot  affect  the  rights  of  the  mortgagee,  and  he  has  no  control 
over  them.  He  has  no  interest  in  the  earnings  of  the  road,  or 
concern  in  the  appropriation  of  them,  until  he  takes  possession  or 
obtains  the  appointment  of  a  receiver.  Therefore  the  stockholders 
of  a  railway  company  cannot  set  up  such  matters  in  defence  to  a 
foreclosure  suit.3 

1  Kenicott    v.    Supervisors,     10    Wall.     Co.  v.   St.  Paul  Co.  6  Wall.  742 ;  Jerome 
452;  following   Carpenter  v.  Lon^an,  II).     >•.  McCaittT,  1H  l*.  S.  7.54. 

271.  3  Branson  v.  La  Crosse  &  Milwaukee 

2  Branson  v.  La  Crossc&  Milwaukee  B.     R.  B.  Co.  2  Wall.  1283. 
B.  Co.  2  Wall.   283  ;   and  sec    Minnesota 

.  427 


§  452.]  FORECLOSURE  PROCEEDINGS. 

IV.  Decrees. 

452.  Decree  of  sale  of  railroad  situate  in  two  states.  —  The 
fact  that  a  railroad  company  running  through  two  states  is  incor- 
porated in  both  does  not  prevent  a  court  sitting  in  one  of  these 
states  from  ordering  a  sale  of  the  entire  property  situated  in  both 
states,  under  a  mortgage  of  the  entire  line  of  road  executed  by  one 
corporate  body.  The  execution  of  the  mortgage  in  this  way 
would  estop  the  corporation  from  setting  up  a  separate  existence 
in  the  two  states.  Moreover,  there  is  no  reason  why  a  corpora- 
tion chartered  by  two  states  may  not  constitute  one  and  the  same 
corporate  body.1  Mr.  Justice  Strong,  delivering  the  judgment  of 
the  Supreme  Court  of  the  United  States,  in  favor  of  the  validity 
of  such  a  decree,  said  :  2  "If  such  a  foreclosure  and  sale  cannot 
be  made  of  a  railroad  which  crosses  a  state  line  and  is  within  two 
states,  when  the  entire  line  is  subject  to  one  mortgage,  it  is  cer- 
tainly to  be  regretted ;  and  to  hold  that  it  cannot  be  would  be 
disastrous,  not  only  to  the  companies  that  own  the  road,  but  to 
the  holders  of  bonds  secured  by  the  mortgage.  Multitudes  of 
bridges  span  navigable  streams  in  the  United  States,  —  streams 
that  are  boundaries  of  two  states.  These  bridges  are  often  mort- 
gaged. Can  it  be  that  they  cannot  be  sold  as  entireties  by  the 
decree  of  a  court  which  has  jurisdiction  of  the  mortgagors  ?  A 
vast  number  of  railroads  partly  in  one  state  and  partly  in  an 
adjoining  state,  forming  continuous  lines,  have  been  constructed 
by  consolidated  companies,  and  mortgaged  as  entireties.  It  would 
be  safe  to  say  that  more  than  one  hundred  millions  of  dollars 
have  been  invested  on  the  faith  of  such  mortgages.  In  many 
cases  these  investments  are  sufficiently  insecure  at  the  best.  But 
if  the  railroad,  under  legal  process,  can  be  sold  only  in  fragments  ; 
if,  as  in  this  case,  where  the  mortgage  is  upon  the  whole  line,  and 
includes  the  franchises  of  the  corporation  which  made  the  mort- 
gage, the  decree  of  foreclosure  and  sale  can  reach  only  the  part 
of  the  road  which  is  within  the  state,  it  is  plain  that  the  property 
must  be  comparatively  worthless  at  the  sale.  A  part  of  a  rail- 
road may  be  of   little  value  when  its  ownership  is  severed  from 

1  Wilmer  v.  Atlanta  &  Richmond  Air         2  Muller   v.  Dows,  94  U.  S.  444,  449. 
Line  Ry.  Co.  2  Woods,  447,  454  ;  McEl-     See  §§  413,  414. 
ratli  v.  Pittsburg  &  Steubenville  R.  R.  Co. 
55  Pa.  St.  189. 

428 


DECREES.  [§  452. 

the  ownership  of  another  part.     And   the  franchise  of  the   com- 
pany is  not  capable  of  division. 

"  In  view  of  this,  before  we  can  set  aside  the  decree  which  was 
made,  it  ought  to  be  made  clearly  to  appear  beyond  the  power 
of  the  court.  Without  reference  to  the  English  chancery  de- 
cisions, where  this  objection  to  the  decree  would  be  quite  untena- 
ble, we  think  the  power  of  courts  of  chancery  in  this  country  is 
sufficient  to  authorize  such  a  decree  as  was  here  made.  It  is 
here  undoubtedly  a  recognized  doctrine  that  a  court  of  equity, 
sitting  in  a  state  and  having  jurisdiction  of  the  person,  may  en- 
force the  decree  by  process  against  the  defendant.  True,  it  can- 
not send  its  process  into  that  other  state,  nor  can  it  deliver  pos- 
session of  land  in  another  jurisdiction,  but  it  can  command  and 
enforce  a  transfer  of  the  title.  And  there  seems  to  be  no  reason 
why  it  cannot,  in  a  proper  case,  effect  the  transfer  by  the  agency 
of  the  trustees  when  they  are  complainants." 

In  New  Jersey 1  it  is  provided  by  statute  that  railroad  corpora- 
tions existing  by  or  under  the  laws  of  another  state,  any  part  of 
whose  route,  whether  acquired  by  lease  or  otherwise,  lie  within 
this  state,  or  which  are  authorized  to  exercise  any  franchises  with- 
in this  state,  shall  be  deemed  corporations  of   this  state,  for  the 
purpose  of  being  sued  or  proceeded  against  if  insolvent,  in   the 
same  manner  and  to  the  same  extent  as  if  organized  originally 
therein,  and  no  suit  of  foreign  attachment  shall  be  brought  against 
any  such  corporation.     In  case  suit  shall  be  brought  for  the  fore- 
closure of  any  mortgage  of  the  franchises  and  railroads  of  any 
such  corporation  in  the  state  of  its  original  creation  and  domicil, 
and  also  of  the  same  mortgage  in  the  Court  of  Chancery  of  this 
state,  the  suit  in  the  Court  of  Chancery  shall,  so  far  as  consistent 
witli  the  protection  of  parties  having  acquired  liens  in  this  stale, 
be  regarded  and  conducted  as  auxiliary  to  the  said  suit  brought 
in  said  state  where  such  corporation  was  originally  created  and 
domiciled;  and,  upon  decree  obtained  in  the  last  mentioned  suit 
for  the  foreclosure  of  such  mortgage,  and  for  the  Bale  of  the  prop 
erty  and  franchises  thereby  conveyed,  including  such  property  and 
franchises  in   New  Jersey,  to  pay  and  satisfy  the  mortgage  and 
other  Liens  which   may  1>"  established  by  such  decree  by  such  offi- 
cers as  shall   be  designated  therefor,  the  Courl   of  Chancery  in 
this  .st ;i t<;  shall  be  empowered  so  to  frame  its  decree  Eor  Eoreclos- 

«  Lawa  L876,  eta.  78,  §§  1,  '-':  '-'  B.  8.  1877,  p.  921,  §§71   81. 

129 


§§  453,  454.]  FORECLOSURE   PROCEEDINGS. 

ure  and  sale  under  said  mortgage,  to  satisfy  the  same  and  such 
other  liens  which  by  its  said  decree  it  shall  establish,  as  that  sale 
may  be  made  thereunder,  out  of  this  state,  and  at  the  same 
time  and  place  of  the  sale  under  the  judgment  or  decree  obtained 
in  said  other  state,  and  under  such  regulations  as  to  advertise- 
ment thereof  as  to  the  chancellor  shall  seem  fit. 

453.  Decrees  entered  by  consent,  in  like  manner  as  decrees 
in  ex  parte  cases,  so  long  as  they  remain  unexecuted,  are  subject 
to  the  control  of  the  court.  Such  decrees  have  legal  effect  so  long 
as  they  stand  unreversed ;  but  in  fact  they  are  the  agreements  of 
the  parties,  which  the  court  merely  assents  and  gives  effect  to,  and 
are  not  judicial  determinations.1  So  long  as  such  decrees  have 
not  been  acted  upon  the  court  is  at  liberty  to  correct  them  accord- 
ing as  the  court  may  afterwards  judicially  ascertain  the  facts  and 
the  laws.  But  this  power  does  not  exist  after  such  decrees  have 
been  carried  into  effect.  They  are  then  regarded  as  final,  and 
estop  the  parties  and  their  privies  from  calling  them  in  question.2 
A  consent  decree  entered  upon  the  basis  of  an  agreement  between 
the  parties,  by  which  the  execution  of  a  decree  against  a  railroad 
company  was  suspended  upon  certain  terms,  must  be  executed  by 
the  company  when  the  other  party  has  complied  with  the  agree- 
ment on  his  part.  Where,  by  such  a  decree,  the  railroad  com- 
pany was  to  pay  certain  instalments  of  a  debt  at  certain  dates 
until  the  whole  was  paid,  and  if  default  was  made  the  com- 
plainants were  to  wait  ninety  days  before  making  a  seizure  and 
sale  of  the  property,  proceedings  for  sale  after  the  ninety  days' 
indulgence  will  not  be  stayed,  except  upon  some  ground  founded 
upon  the  agreement ;  the  company  must  show  a  desire  or  willing- 
ness to  comply  with  the  substance  of  the  agreement.  The  equi- 
ties of  third  parties  are  no  ground  on  which  to  base  such  a  peti- 
tion.3 

454.  "When  a  decree  made  by  consent  is  beyond  the  scope 

1  Vermont  &  Canada  R.  R.  Co.  v.  Ver-  Bank  of  Louisiana  v.  Marin,  3  La.  Ann. 
mont  Central  R.  R.  Co.  50  Vt.  500;  14  34.  "  Consent  decrees  decide  nothing. 
Am.  Railw.  R.  497,  531,  per  Barrett,  J.  They  merely  authenticate  private  agree- 

2  Wadhams  v.  Gay,  73  111.  415  ;  Edger-  ments,  and    render    them   executory   be- 
ton  v.  Muse,  2  Hill  (S.  C-)  Ch.  51  ;  Farm-  tween  the  parties."    Per  Rost,  J. 
ers'Loan  &  Trust  Co.  v.  Central  R.  R.  of        3  Anderson   v.  Jacksonville,  Pensacola 
Iowa,  4  Dill.  533.    And  see,  further,  Union  &  Mobile  R.  R.  Co.  2  Woods,  628. 

430 


DECREES.  [§  454. 

of  the  original  bill,  and  not  in  accordance  with  settled  principles 
of  law,  although  the  parties  are  bound  by  it  after  it  has  been  acted 
upon  by  either  of  them,  yet  the  court  not  having  made  the  decree 
in  the  exercise  of  a  judicial  judgment  or  deliberation  will  not  be 
bound  to  regard  it  beyond  the  specific  matter  which  is  the  subject 
of  the  decree.     The  court  is  free  to  adopt  a  different  policy  at  a 
subsequent  stage  of  the  case.     Thus,  in  the  case  of  the  Vermont 
Central  Railroad  Company,1  after  a  receiver  had  been  regularly 
appointed  by  the  court,  and  had  been  in  possession  of  the  road 
for  some  years,  the  parties  made  a  compromise  which  in  fact  dis- 
charged the  debt  for  liquidation  of  which  the  receivership  was  cre- 
ated, so  that  the  occasion  for  the  receivership  no  longer  existed. 
This  compromise  "  was  devised  and  put  in  form  as  the  outcome  of 
the  mind  and  will  of  the  parties,  as  the  mode  of  consummating  into 
validity  a  mutual  arrangement  by  the  parties  as  to  their  respec- 
tive rights  and  interests,  and  as  to  the  mode  and  means  by  which 
the  property  was   to  be  held  and  used  in  serving  and  satisfying 
those  rights  and  interests.     That  decree  adopted  what  had  been 
created  by  the  court  as  a  receivership,  as  known  and  warranted 
by  the  law  ;  but  the  administration  of  it  was  not  left  to  the  judicial 
judgment  and  direction  of  the  court  under  the  law  authorizing 
and  governing  a  receivership,  known  to  the  law  as  such.     Instead 
thereof  the  parties  enacted  a  code  ex  contractu  for  the  administra- 
tion of  the  property,  and  provided  ex  contractu  that  there  should 
be  the  formality  as  of  a  decree  supervening   thereupon."     The 
administration  proceeded  for  ten  years  or  more  before  there  was 
any   adverse  litigation  between  the  parties,   during  which   time 
there  were  many  ancillary  decrees  and  orders  mainly  agreed  upon 
by  the  parties.     Such  administration,  although  called  a  receiver- 
ship in  the  proceedings,  and  having  the  form  of  one,  was  practi- 
cally one  by  agreement  of  the  parties.     The  court  did  not  exercise 
its  own  prerogative   and   control  except  in   subordination  to   the 
agreement  of  the  parties.     Its  function  was  virtually  the  giving 
of  formal  assent  to  what  had  been  devised  and  agreed  upon  by 
the  parties.     The  court,  therefore,  upon  the  occurrence  of  adverse 
litigation  at  a  later  stage  of  the  cause,  did  not  hesitate  to  declare 
that  this  receivership  was  not  a  receivership  in  law.     "The  court 
could  not,  in  the  first  instance,  bind  by  judgment,  decree,  and 

•  Vermont  &  Canada  R.  R.  Co.  v.  Vermont  Central  R.  R.  Co.  :.i>  Yt.  550,  564  ;  14 

Am.  Railw.  R.  4'J7,5.,(8)  .000. 

i;;i 


§  455.]  FORECLOSURE  PROCEEDINGS. 

order,  beyond  the  scope  of  the  original  bill,  except  by  consent, 
and  by  acquiescence  in  the  execution  thereof,  and  it  would  be 
without  warrant  for  the  court  to  supervene  upon  what  has  come 
to  pass  in  virtue  of  agreement,  consent,  and  acquiescence,  and 
deal  with  the  subject  and  the  parties  the  same  as  if  all  had  been 
done  within  the  scope  of  the  original  bill  and  under  the  original 
decree,  in  the  legitimate  exercise  of  judicial  prerogative,  in  the 
discharge  of  judicial  duty,  and  as  the  result  of  independent  judi- 
cial judgment." 

455.  Final  decree.  —  A  decree  in  a  foreclosure  suit  fixing  the 
amount  of  interest  due  on  a  mortgage,  and  providing  for  a  sale 
unless  payment  be  made  within  a  year,  is  a  final  decree  from 
which  an  appeal  may  be  taken.1  But  a  decree  which  does  not  fix 
the  amount  due  upon  the  mortgage,  nor  ascertain  and  define  the 
property  to  be  sold  under  the  decree,  is  not  final  in  the  sense 
which  allows  an  appeal  from  it.2 

After  an  injunction  restraining  a  sale  under  a  deed  of  trust,  a 
decree  dissolving  the  injunction,  and  directing  a  sale  according  to 
the  deed  of  trust,  and  the  bringing  of  the  proceeds  into  court,  is 
a  final  decree  from  which  an  appeal  may  be  taken.3 

An  order  appointing  a  receiver  is  a  final  order  from  which  there 
may  be  an  appeal.4 

1  Milwaukee  &  Minn.  R.  R.  Co.  v.  Sout-  2  Railroad  Co.  v.  Swasey,  23  Wall.  405. 

ter,   2  Wall.  440;  Blossom  v.  Milwaukee,  3  Railroad  Co.  v.  Bradleys,  7  Wall.  575. 

&c.  R.  R.  Co.  1  Wall.  655  ;  and  see  Hinck-  4  Cincinnati,  Sandusky  &  Cleveland  R. 

ley  v.  Gilman,  Clinton  &  Springfield  R,  R.  R.  Co.  v.  Sloan,  31  Ohio  St.  1. 
Co.  94  U.  S.  467. 

432 


CHAPTER  XV. 

THE   APPOINTMENT    AND   JURISDICTION   OF   RECEIVERS. 

I.  Grounds   for   the    appointment   of  re-  I  II.  Selection  of  receivers,  480-482. 
ceivers,  456-479.  I  III.  Jurisdiction  of  receivers,  483-492. 

I.    Grounds  for  the  Appointment  of  Receivers. 

At  the  present  time  when  so  many  railways  in  the  United 
States  are  in  the  hands  of  receivers,  the  subject  of  their  appoint- 
ment, rights,  and  liabilities  is  one  of  interest,  not  only  to  cred- 
itors and  others  immediately  interested  in  the  insolvent  companies, 
but,  in  at  least  one  aspect,  to  the  business  community  generally ; 
for  one  of  the  questions  constantly  arising  in  the  operation  of 
roads  by  receivers  relates  to  the  extent  of  their  liability,  or  of  the 
liability  of  the  funds  in  their  charge,  for  loss  and  damage  done 
to  goods  carried  by  them,  and  for  the  negligence  of  employees 
whereby  injury  happens  to  passengers.  The  whole  subject  is  one 
of  recent  growth,  and  many  of  the  most  important  decisions  em- 
braced within  it  have  been  rendered  within  two  or  three  years. 
Without  dealing  much  with  elementary  matters,  the  present  chap- 
ter will  present  so  much  of  the  subject  as  relates  to  the  appoint- 
ment of  receivers  and  their  jurisdiction  over  the  property,  and  the 
succeeding  chapter  will  relate  to  their  duties  and  liabilities.1 

456.  The  English  rule  in  regard  to  the  appointment  of 
receivers  at  the  suit  of  a  mortgagee  formerly  was2  that  a  Benior 
mortgagee  could  not  generally  obtain  such  appointment,  because, 

1  It  ia  neither  practicable  nor  desirable        -  Doe  v.  St.  Helen's,  &c.  Ry.  Co.   2  Q. 

to  embrace  in  this  treatise  the  whole  sub-  B.  364  ;  Potts  v.  Warwick  8  Birmingham 

jectof  the  Law  of  Receivers.    For  the  gen-  Canal  Co.  Kay,  146  ;  Bowen  ».  Brecon  Rj 

era!  law  of  this  subject,  reference  may  be  Co.  L.  R.  3  Eq.  541  ;  Fripp  v.  Chard  Ry. 

had  to  the  excellent  work  of  Mr.  High.  Co.  11   Hare,  241;  Hopkins  ,-.  Worce  ter 

Thesubject  is  developed  here  only  so  far  &  Birmingham  Ry.  Co   L.  R.  6  Eq.447; 

as  it  relate  directly  to  the  enforcement  of  Amei  v.  Birkenhead  Docks,  30  Beav.  34S. 
corporate  securities. 

28  488 


§  456.]       THE   APPOINTMENT    AND   JURISDICTION   OF   RECEIVERS. 

having  the  legal  title,  he  had  full  remedy  at  law  for  the  re- 
covery of  possession  by  ejectment.  When,  however,  his  inter- 
est was  such  that  he  could  not  maintain  ejectment,  as  for  in- 
stance when  that  interest  was  the  "■undertaking"  of  a  railway 
or  canal  company,  or  the  rates,  tolls,  and  dues  arising  therefrom, 
he  might  come  into  court  for  a  receiver.1  By  statute,  the  holder 
of  the  legal  title  by  mortgage  is  enabled  to  obtain  the  appoint- 
ment of  a  receiver  in  all  instances  where  there  has  been  a  de- 
fault in  the  payment  of  the  principal  debt  for  one  year,  or  of 
interest  for  six  months.2  But,  prior  to  a  recent  statute  upon 
this  subject,  it  was  held  that  the  remedy  of  a  mortgagee  of  a 
railway  company  for  the  enforcement  of  the  debt  did  not  ex- 
tend to  the  obtaining  of  a  receiver  to  manage  and  operate  the 
road.3  The  Court  of  Chancery  will,  however,  appoint  a  receiver 
of  tolls  or  earnings  of  the  company  when  these  are  liable  to  the 
payment  of  the  debt.  This  is  a  remedy  essentially  different  from 
the  appointment  of  a  manager  of  the  undertaking.  Upon  an  ap- 
plication to  the  Rolls  Court  for  a  receiver,  Sir  John  Romilly, 
Master  of  the  Rolls,  appointed  a  receiver  of  the  tolls  and  rents ; 4 
but  said  :  "  I  do  not  think  I  can  give  to  the  receiver  such  power 
of  management  of  the  affairs  of  the  corporation  as  would  make 
him  liable  to  proceedings  by  the  attorney  general  by  mandamus, 
or  the  like.  I  am  not  aware  whether  the  letting  by  the  receiver, 
instead  of  the  corporation,  would  have  that  effect ;  but,  if  it 
would,  then  the  letting  should  be  by  the  corporation,  but  the 
rents  should '  be  secured  by  the  receiver."  The  appointment  of 
a  receiver,  at  the  suit  of  a  mortgagee  of  tolls,  is  one  of  the  oldest 
remedies  of  the  court,  and  not  dependent  upon  any  statute.5 

In  a  case  before  the  English  Court  of  Appeal  in  Chancery,6 
upon  the  question  of  appointing  a  receiver  of  a  railway  company 
in  behalf  of  mortgagees,  Lord  Cairns  said  :  "In  addition  to  the 


1  Doe  v.  St.  Helen's,  &e.  Ry.  Co.  supra,  statute  was  enacted,  in  1867,  for  the  ap- 

2  23  &  24   Vict.  c.  145,  §§  11-32.     By  pointment  of  a  manager  of  a  railway  com- 
tho  Judicature  Act  of  1873,  a  receiver  may  pany,  at  the  suit  of  a  judgment  creditor, 
be  appointed  by  an  interlocutory  order  of  4  De    Winton   v.    The    Mayor,   &c.   of 
the  court,  in  all  cases  in  which  it  shall  ap-  Brecon,  26  Beav.  533. 

pear  to  the  court  to  be  just  or  convenient  6  Hopkins  v.  Worcester  &  Birmingham 

that  such  order  should  be  made.     36  &  37  Ey.  Co.  supra. 

Vict.  ch.  66,  §  25,  subs.  8.  «  Gardner  v.  London,  Chatham  &  Dover 

3  In  consequence  of  the  refusal  of  the  R.  Co.  2  L.  R.  Ch.  201,  212. 
Court  of  Chancery  to  give  this  remedy, 

434 


GROUNDS   FOR   THE  APPOINTMENT   OF   RECEIVERS.        [§  457. 

general  principle  that  the  Court  of  Chancery  will  not  in  any  case 
assume  the  permanent  management  of  a  business  or  undertaking, 
there  is  that  peculiarity  in  the  undertaking  of  a  railway  which 
would,  in  my  opinion,  make  it  improper  for  the  Court  of  Chan- 
cery to  assume  the  management  of  it  at  all.  When  parliament, 
acting  for  the  public  interest,  authorizes  the  construction  and 
maintenance  of  a  railway,  both  as  a  highway  for  the  public,  and 
as  a  road  on  which  the  company  may  themselves  become  carriers 
of  passengers  and  goods,  it  confers  powers  and  imposes  duties  and 
responsibilities  of  the  largest  and  most  important  kind,  and  it 
confers  and  imposes  them  upon  the  company  which  parliament 
has  before  it,  and  upon  no  other  body  of  persons.  These  powers 
must  be  executed  and  these  duties  discharged  by  the  company. 
They  cannot  be  delegated  or  transferred.  The  company  will,  of 
course,  act  by  its  servants,  for  a  corporation  cannot  act  otherwise, 
but  the  responsibility  will  be  that  of  the  company.  The  com- 
pany could  not,  by  agreement,  hand  over  the  management  of  the 
railway  to  the  debenture  holders.  It  is  impossible  to  suppose  that 
the  Court  of  Chancery  can  make  itself  or  its  officer,  without  any 
parliamentary  authority,  the  hand  to  execute  these  powers,  and 
all  the  more  impossible  when  it  is  obvious  that  there  can  be  no 
real  and  correlative  responsibility  for  the  consequences  of  any  im- 
perfect management.  It  is  said  that  the  railway  company  did  not 
object  to  the  order  for  a  manager.  This  may  well  be  so.  But,  in 
the  view  I  take  of  the  case,  the  order  would  be  improper  even  if 
made  on  the  express  agreement  and  request  of  the  company." 

457.  In  the  United  States,  courts  of  equity  have  exercised 
their  powers  with  much  more  freedom  in  the  appointment  of 
receivers  of  railways.  There  has,  unfortunately,  been  much  occa- 
sion for  the  exercise  of  their  jurisdiction  in  the  temporary  man- 
agement of  the  roads  of  insolvent  companies.  Instances  are  not 
wanting  where  courts  have,  through  their  receivers,  retained  the 
management  of  such  roads  through  a  long  series  of  years  ;  and  the 
propriety  <,f  this  course  has  frequently  been  assailed.  Generally, 
however,  the  doctrine  is  fully  recognized  that  courts  assume  the 
management  of  railroads  only  with  a  view  to  the  winding  up  <>f 
insolvent  companies,  or  to  the  sale  of  their  property  for  the  benefit 
of  the  mortgage  creditors ;  that,  in  the  Larger  class  of  cases,  justili- 
cation  of  the  appointment  of  a  receiver  springs  out  <>f  the  jurisdio- 

486 


§  457.]       THE   APPOINTMENT    AND   JURISDICTION   OF   RECEIVERS. 

tion  of  courts  thus  to  liquidate  and  sell ;  and  that,  in  these  cases, 
roads  are  managed  and  their  business  continued,  through  the  in- 
tervention of  receivers,  in  order  that  the  roads  may  be  sold  with- 
out loss  of  business  and:  depreciation  of  the  property.1  In  this 
way  the  property  is  preserved,  pending  the  litigation,  and  used 
for  the  benefit  of  all  concerned,  with  the  ultimate  purpose  of  dis- 
posing of  the  property  itself,  and  obtaining  assets  with  which  to 
pay  off  the  mortgage  upon  foreclosure  of  it.  There  are  other  cir- 
cumstances which  will  justify  the  interference  of  a  court  of  equity 
by  the  appointment  of  a  receiver ;  as  for  instance  when  a  com- 
pany receiving  income  more  than  sufficient  to  pay  the  expenses  of 
an  economical  management  refuses  to  apply  the  surplus  to  the 
payment  of  a  judgment  or  mortgage  which  is  a  lien  upon  its 
property.2 

In  some  states  courts  of  equity  are  fortified  in  their  assumption 
of  the  management  of  insolvent  railroad  and  other  corporations  by 
express  statutes.  But,  without  the  aid  of  a  statute,  the  chancery 
jurisdiction  of  the  courts  is  sufficient  for  the  exercise  of  this  au- 
thority in  all  instances  where  their  interference  is  necessary  to 
protect  the  property  or  to  enforce  the  right  of  persons  interested 
in  it,  whether  creditors  or  stockholders.3  "It  is  not  unusual," 
said  Mr.  Justice  Swayne,  of  the  United  States  Supreme  Court,4 
"  for  courts  of  equity  to  put  receivers  in  charge  of  the  railroads  of 
companies  which  have  fallen  into  financial  embarrassment,  and  to 
require  them  to  operate  such  roads  until  the  difficulties  are  re- 
moved, or  such  arrangements  are  made  that  the  roads  can  be  sold 
with  the  least  sacrifice  of  the  interest  of  those  concerned.  In  all 
such  cases  the  receiver  is  the  right  arm  of  the  jurisdiction  invoked. 
As  regards  the  statutes,  we  see  no  reason  why  a  court  of  equity, 
in  the  exercise  of  its  undoubted  authority,  may  not  accomplish 
all  the  best  results  intended  to  be  secured  by  such  legislation 
without  its  aid." 

In  several  states  it  is  provided  by  statute  that  in  an  action  by  a 
mortgagee  for  the  foreclosure  of  his  mortgage  and*  the  sale  of  the 
mortgaged  property,  a  receiver  may  be  appointed  where  it  appears 

1  Milwaukee  &  Minnesota  R.  R.  Co.  v.     herd,  21    How.  112  ;  and  see  Stevens  v. 
Soutter,  2  Wall.  510;  S.   C.  Woolworth,     Davison,  18  Gratt.  (Va.)  819. 

49;  Florida  v.  Jacksonville,  Pensacola  &         3  Stevens  v.  Davison,   18    Gratt.    (Va.) 
Mobile  R.  R.  Co.  15  Fla.  201,  286.  819. 

2  Covington  Drawbridge  Co.   v.   Shep-         *  Davis  v.  Gray,  16  Wall.  203. 

436 


GROUNDS  FOR  THE  APPOINTMENT  OF  RECEIVERS.    [§  458. 

that  the  mortgaged  property  is  in  danger  of  being  lost,  removed, 
or  materially  injured,  or  that  the  condition  of  the  mortgage  has 
not  been  performed,  and  that  the  property  is  probably  insufficient 
to  discharge  the  mortgage  debt.1 

In  Michigan  a  court  of  chancery  cannot  take  from  the  directors 
of  a  corporation  or  vest  in  a  receiver  the  management  and  control 
of  the  corporate  business,  except  in  proceedings  to  dissolve  the 
corporation  under  a  statute  providing  therefor.  An  ex  parte  ap- 
pointment of  a  receiver  to  manage  the  corporate  business,  or  an 
ex  parte  granting  of  an  interlocutory  injunction  to  deprive  the 
directors  of  control,  is  more  than  irregular ;  it  is  absolutely  void, 
being  entirely  beyond  the  power  of  «the  court.2 

458.  The  appointment  of  a  receiver  is  an  equitable  remedy, 
and  has  been  said  to  be  in  effect  an  equitable  execution.3  This 
remedy  is  a  provisional  one  also,  and  bears  a  similar  relation  to 
courts  of  equity  that  proceedings  in  attachment  bear  to  courts  of 
law.  "  The  issuing  of  an  attachment  and  the  appointment  of  a 
receiver  in  a  civil  action  are  both  proceedings  which  are  merely 
ancillary  or  auxiliary  to  the  main  action.  The  action  may  be 
prosecuted  to  final  judgment,  either  with  or  without  such  proceed- 
ings. These  auxiliary  proceedings  are  merely  intended  to  secure 
the  means  for  satisfying  the  final  judgment  in  case  the  plaintiff 
should  succeed  in  the  action,  and  they  can  only  be  resorted  to 
where  the  special  circumstances  exist  which  the  law  prescribes 
for  their  institution."  4 

The  appointment  of  a  receiver  of  a  railroad  company  in  a  fore- 
closure suit  does  not  follow  a  default  in  the  payment  of  interest 
as  a  matter  of  course,  but  is  a  matter  of  sound  discretion  with  the 
court.  Although  the  mortgage  provides  that  the  trustee,  on  de- 
fault of  payment  of  either  principal  or  interest  of  the  bonds,  may 
take   possession  of  the  property,  yet  when  the  aid  of  a  coin)  of 

1  California,  Codes  &  Stats.   L876,ch.  5,  For  statute  authorizing  appointment  "I'  re- 

l  t  ;  Arkansas,  Digest   1874,  p.  838,  ceivers  in  New  York,  see  a  R.  S.   1875,  p, 

§  4810 ;  Kentucky,  Code  of  Practice  1876,  511,  §244. 

J  299;  Dakota  T.f  Code  of  Civil  Procedure        "Port  Buron   &    Gratiol    Ry.    Co.    v. 

1877,  §  219;  Montana  T.,  Law  -  1877,  \>.  Judge  of  St.  Clair  Circuit,  81  Mich    156. 

odeof  Civil  Procedure,  § 221  ;  Wash-        8  Jeremy's  Km-  Jur.  249. 
ington  T.,  Laws  1877,  p  i"  |  Wyoming  T.,         '  Cincinnati,  Sandusky  &  Cleveland  R. 

Compiled   Laws   1877,  ch.    I  of  R.  Co.  v.  Sloan,  31  Ohio,  1,  perWhite,J. 

Civil    Code;   Ohio,   R.  8.  I860,  p.    1019. 

137 


§  459.]       THE   APPOINTMENT   AND   JURISDICTION   OF   RECEIVERS. 

equity  is  invoked  it  will  look  into  the  facts  and  exercise  an  equi- 
table discretion.1 

459.  Upon  an  application  for  a  receiver  by  mortgage  cred- 
itors, it  is  generally  necessary  to  show  something  more  than 
the  fact  that  a  default  has  occurred  in  the  payment  of  in- 
terest; as  for  instance  to  show  that  ultimate  loss  is  likely  to 
happen  to  the  beneficiaries  under  the  mortgage  by  permitting  the 
property  to  remain  in  the  hands  of  its  owners  until  final  decree 
and  sale.2  The  appointment  of  a  receiver  is  a  matter  within  the 
sound  discretion  of  the  court,  and  the  power  is  exercised  in  behalf 
of  railway  bondholders  only  «in  strong  cases ;  and  only  upon  its 
appearing  that  the  property  is  insufficient  to  pay  the  debt,  and 
that  the  mortgage  creditors  are  in  danger  of  suffering  irreparable 
loss.3  Urgent  occasion  for  the  appointment  of  a  receiver  to  man- 
age and  operate  a  railroad  should  be  shown  before  the  court  exer- 
cises its  authority  in  this  way.  Mr.  Justice  Miller,  of  the  Supreme 
Court  of  the  United  States,  in  reference  to  the  exigencies  which 
justify  the  exercise  of  this  prerogative  of  a  court  of  chancery,  said4 
that  the  appointment  of  receivers  by  a  court  to  manage  the  affairs 
of  a  long  line  of  railroad,  continued  through  five  or  six  years,  is 
one  of  those  judicial  powers,  the  exercise  of  which  can  only  be 
justified  by  the  pressure  of  an  absolute  necessity. 

Such  a  necessity  did  not  exist  in  the  case  before  him  :  "  The 
idea  of  appointing  or  continuing  a  receiver  for  the  purpose  of  tak- 
ing ninety-five  miles  of  railroad  from,  its  lawful  owners,  which  is 
earning  a  gross  revenue  of  $800,000  per  annum,  to  enforce  the 
payment  of  a  judgment  of  $16,000,  the  lien  of  which  is  seriously 
controverted,  is  so  repugnant  to  all  our  ideas  of  judicial  proceed- 
ings that  we  cannot  argue  the  question.  If  Mr.  Howard  has  a 
valid  judgment,  the  usual  modes  of  enforcing  that  judgment  are 

1  Jones  on  Mortgages,  §  1516;  Wil-  Minnesota  R.  R.  Co.  v.  Soutter,  2  Wall, 
liamson  v.  New  Albany,  &c.  R.  R.  Co.  1  510 ;  Vose  v.  Reed,  1  Woods,  647  ;  Fris- 
Biss.  198.  bee  v.  Timanus,  12  Fla.  300;  Florida  v. 

2  Williamson  v.  New  Albany  R.  R.  Co.  Jacksonville,  Pensacola  &  Mobile  R.  R. 
lBiss.  198;  Union  Trust  Co.  v.  St.  Louis,  Co.  15  Fla.  201,  286;  Cincinnati,  San- 
Iron  Mountain  &  Southern  R.  R.  Co.  4  dusky  &  Cleveland  R.  R.  Co.  v.  Sloan,  31 
Dill.  114  ;  4  C.  L.  J.  585;  Cheever  v.  Rut-  Ohio  St.  1. 

land  &  Burlington  R.  R.  Co.  39  Vt.  653 ;  *  Milwaukee  &  Minnesota  R.  R.  Co.  v. 

Burlingame  v.  Parce,  12  Hun  (N.  Y.),  144.  Soutter,  2  Wall.  510;  and  see  Delaware, 

8  Pullan  v.  Cincinnati    &   Chicago  Air  Lackawanna  &  Western  R.  R.  Co.  v.  Erie 

Line  R.  R.  Co.  4  Biss.  35;  Milwaukee  &  Ry.  Co.  21  N.  J.  298. 
438 


GROUNDS  FOR  THE  APPOINTMENT  OF  RECEIVERS.    [§  460. 

open  to  him,  both  at  law  and  in  chancery;  but  the  extraordinary- 
proceeding  of  taking  millions  of  dollars'  worth  of  property  of  such 
peculiar  character  as  railroad  property  is  from  its  rightful  possess- 
ors, as  one  of  the  usual  means  of  collecting  such  a  comparatively 
small  debt,  can  find  no  countenance  in  this  court." 

To  the  same  effect  Mr.  Justice  Barrett,  of  the  Supreme  Court 
of  Vermont,  says: 2  "  It  is  a  fundamental  element  in  any  idea  of 
a  receivership  under  the  law  that  there  should  be  such  a  necessity 
for  it  as  to  render  it  the  duty  of  the  court,  in  the  exercise  of  its 
judicial  judgment  upon  the  case  presented,  to  exert  its  preroga- 
tive in  that  behalf,  and  create  the  receivership  in  the  discharge  of 
that  duty.  It  is  never  to  be  created  because  it  will  do  no  harm  ; 
nor  even  because  it  will  do  good,  unless  the  exigency  be  such  as 
to  impose  the  duty  upon  the  court." 

460.  Whether  a  receiver  should  be  appointed  is  a  ques- 
tion often  attended  with  difficulty,  and  to  answer  it  properly 
is  one  of  the  most  embarrassing  duties  a  Court  of  Chancery  has 
to  perform.  This  was  the  remark  of  Judge  Drummond  in  a  cause 
before  the  Circuit  Court  of  the  United  States,  which  presented 
peculiar  and  unusual  difficulties.  A  bill  had  originally  been  filed 
by  a  mortgage  trustee  for  a  foreclosure  of  the  mortgage  and  a  sale 
of  the  property.  After  the  case  had  been  pending  some  time,  a 
compromise  agreement  was  made  for  a  reorganization  of  the  com- 
pany, and  a  decree  was  entered  by  consent  ratifying  the  agreement. 
This  contemplated,  with  other  things,  a  surrender  of  a  portion  of 
the  bonds  and  their  conversion  into  stock  ;  and,  of  course,  could  be 
made  effectual  only  by  the  voluntary  action  of  all  the  bondholders. 
The  property  was  placed  in  the  hands  of  a  trustee  to  carry  out  the 
orders  of  the  court.  Various  interlocutory  orders  were  made  in 
the  case  from  time  to  time.  After  some  years  the  trustee  and 
some  of  the  bondholders  applied  to  a  state  court  for  a  foreclosure 
of  the  same  mortgages,  and  that  court  appointed  a  receiver,  and 
decreed  a  sale,  which  was  completed  and  the  road  delivered  t<>  the 
purchasers.  In  this  situation  of  affairs  a  bondholder,  who  had  not, 
come  into  the  compromise  agreement,  applied  t<>  the  Circuit  Court 
for  the  appointment  of  a  receiver,  and  that  court,  having  decided 
that  it  had  not  lost  control  of  the  Bubject  matter  <>l   the  suit,  and 

1  Vermont  &.  Canada  H.  U.  Co.  v.  Vermont  Ccntrnl  K.  II.  Co.  50  Vt.  500  ;  1  I  Am 
Railw.  Rep.  4'j7,  .0-14. 

139 


§  461.]       THE   APPOINTMENT   AND   JURISDICTION    OF   RECEIVERS. 

that  the  interference  of  the  state  court  in  dealing  with  and  dis- 
posing of  property  at  the  time  within  the  jurisdiction  of  the  Cir- 
cuit Court  was  unauthorized,  the  only  inquiry  remaining  was, 
therefore,  whether  a  receiver  should  be  appointed  pending  the  set- 
tlement of  the  rights  of  the  parties  by  the  court.  The  company 
was  insolvent,  the  former  trustee  was  dead,  having  made  no  re- 
ports to  the  court  of  the  manner  in  which  he  had  performed  his 
trust ;  the  new  trustee  had  been  a  party  to  the  litigation  in  the 
state  courts,  and  had  sought  to  dismiss  the  proceedings  in  the  Cir- 
cuit Court.  The  parties  then  in  possession  of  the  road  were  acting 
in  hostility  to  the  decrees  of  the  Circuit  Court,  and  the  interests 
therein  adjudicated.  The  court,  therefore,  deemed  it  impossible 
to  give  any  relief  to  the  petitioner  and  others  in  similar  relations, 
unless  the  court  should  take  possession  of  the  property ;  and  a 
receiver  was  accordingly  appointed.1 

461.  That  a  receiver  will  not  be  appointed  upon  the  ap- 
plication of  a  mortgagee,  as  a  matter  of  course,  upon  a  de- 
fault is  illustrated  by  the  case  of  the  St.  Louis,  Iron  Mountain, 
and  Southern  Railway  Company.  This  company  owed  its  exist- 
ence to  the  consolidation  of  several  other  companies,  which  had 
largely  built  the  road  before  they  were  absorbed  in  the  pres- 
ent corporation.2  Each  of  the  four  companies  which  became  so 
consolidated  was  already  heavily  mortgaged,  and  the  new  cor- 
poration executed  a  mortgage  of  its  property  and  income,  and 
franchises,  for  $28,000,000,  chiefly  for  the  purpose  of  taking  up 
the  existing  mortgages.  Only  about  $2,000,000  of  the  old  bonds 
were  exchanged  for  the  new,  and  it  was  soon  apparent  that  the 
company  could  not  complete  its  road  and  pay  the  interest  on  its 
bonded  debt,  and  consequently  an  arrangement  was  made  by  which 
the  interest  coupons  on  all  the  bonds  for  two  years  were  funded. 
During  this  time  the  road  was  completed,  the  floating  debt  con- 
siderably reduced,  and  the  income  of  the  road  each  year  had  in- 
creased ;  but  the  company  was  unable  to  pay  in  full  the  coupons 
first  maturing  after  this  period.  In  this  condition  of  things  the 
agents  of  Baring  Bros.  &  Co.,  who  were  very  large  creditors  of 
the  company,  proposed  that  half  of  each  coupon  should  be  paid, 
relying  on  the  leniency  of  the  holders  for  such  extension  of  time 

1  Bill  v.  New  Albany,  &c.  Ry.  Co.  2  2  Union  Trust  Co.  v.  St.  Louis,  Iron 
Biss.  390.  Mountain  &   Southern  R.  R.  Co.  4  Dill. 

44Q  114;  S.  C.  4  C.L.J.  585. 


GROUNDS  FOR  THE  APPOINTMENT  OF  RECEIVERS.    [§  461. 

for  the  other  half  as  should  be  necessary.  This  plan  was  accepted 
and  acted  upon  by  nearly  all  the  creditors ;  but  the  above  named 
creditors  had  apparently  changed  their  purpose,  though  no  notice 
of  such  change  appears  to  have  been  given  ;  for  their  coupons 
were  presented  for  payment,  and  payment  of  half  of  each  having 
been  tendered,  it  was  refused,  and  a  bill  for  foreclosure  was  im- 
mediately filed,  with  an  application  for  the  appointment  of  a  re- 
ceiver. The  bill  alleged  that  the  road  was  insolvent ;  that  there 
was  danger  that  the  prior  divisional  mortgages  would  be  fore- 
closed on  the  separate  parts  of  the  road,  and  the  road,  which  was 
valuable  as  a  whole,  would  be  rendered  no  security  at  all  for  the 
debt  of  the  complainants  ;  and  that  the  income  of  the  road  which 
should  be  appropriated  to  the  payment  of  the  interest  would  be 
diverted  to  the  payment  of  the  floating  debt  of  the  company  on 
part  of  which  the  directors  of  the  company  were  personally  liable. 
These  allegations  were  controverted  by  the  answer,  which  claimed 
that  the  road  was  yielding  a  net  income  of  six  per  cent,  on 
$28,000,000,  while  its  entire  debt  was  more  than  -$2,000,000  less 
than  that  sum  ;  that  the  income  had  been  steadily  increasing  for 
several  years  ;  and  that  besides  the  road,  its  rolling  stock  and  ap- 
purtenances, the  company  owned  lands  apart  from  the  road,  but 
subject  to  the  mortgage,  of  the  value  of  $8,000,000. 

It  was  insisted  in  behalf  of  the  complainants,  that  the  failure  to 
pay  the  interest,  and  to  deliver  possession  of  the  road  on  demand, 
left  no  discretion  in  the  court  to  refuse  to  place  the  road  in  the  hands 
of  a  receiver;  that  because  the  income  of  the  road  was  pledged 
for  the  payment  of  the  bonds,  and  the;  trustees  were  authorized, 
on  failure  to  pay  any  instalment  of  interest,  to  take  possession,  the 
court  was  recpiired  as  a  matter  of  law,  without  regard  to  the  re- 
sources of  the  company,  and  without  reference  to  any  showing  of 
danger  of  ultimate  loss  to  the  bondholders,  or  of  any  serious  delay 
of  payment,  to  take  possession  of  the  property  of  the  company. 

Mr.  Justice  Miller,  delivering  the  opinion  of  the  Circuit  Court 
of  the  United  States,  commenting  upon  the  bill  of  the  complain- 
ants, said  that  it  did  not  ask  for  any  specific  performance  of  the 
contract  to  deliver  possession  of  the  road  to  the  mortgagees  iipoo 
default;  that  it  abandoned  the  right  of  foreclosure  by  the  power 

le   given  to  the  trustees,  and  SOUght  the  safer  mode  of   sale  in 

chancery;  that  although  the  Burest  mode  of  securing  the  income 
of  the  io;id  may  he  through  a  receiver,  yet   the  income   is   no 

111 


§  462.]       THE   APPOINTMENT    AND   JURISDICTION    OF   RECEIVERS. 

more  mortgaged  than  the  visible  property  and  franchises  of  the 
company,  and,  unless  there  is  danger  of  loss  to  the  bondholders, 
there  is  no  more  reason  why  the  income  rather  than  other  prop- 
erty of  the  company  should  be  sequestered.  It  is  also  in  the 
power  of  the  court,  without  appointing  a  receiver,  to  require  of 
the  defendant  the  rendering  of  an  account  of  the  income,  and, 
after  payment  of  the  necessary  expenses,  to  pay  so  much  as  right- 
fully should  be  paid  upon  the  debt  secured  by  the  mortgage. 

The  court,  while  admitting  the  right  of  the  complainants  to 
foreclose  the  mortgage,  declared  that  the  appointment  of  a  re- 
ceiver depended  upon  the  danger  of  ultimate  loss  to  the  bond- 
holders, by  permitting  the  property  to  remain  in  the  possession  of 
its  owners  until  the  final  decree  and  sale  ;  that  the  appointment 
is  a  matter  of  discretion  with  the  court  in  view  of  all  the  circum- 
stances of  the  case  ;  and  that  the  facts  established  in  this  case 
did  not  show  any  such  danger  of  loss  to  the  bondholders  as  to 
justify  the  court  in  turning  over  to  them,  or  to  a  receiver,  the 
possession  of  the  road  and  property  embraced  in  the  mortgage. 

462.  A  receiver  will  not  be  appointed  against  the  wishes 
and  interests  of  a  great  majority  of  the  bondholders,  upon 
the  application  of  a  very  small  minority  of  bondholders,  so  long 
as  the  property  is  honestly  and  successfully  managed  ;  but  will 
leave  the  complainants  to  their  remedy  of  a  decree  of  sale  in  ac- 
cordance with  the  law  and  pi'actice  in  an  ordinary  foreclosure 
suit.  In  such  case  the  equities  of  the  great  body  of  the  creditors 
and  stockholders  of  a  railroad  company,  whose  interests  would  be 
imperilled  by  the  appointment  of  a  receiver,  will  be  respected  in 
the  exercise  of  the  discretionary  power  of  the  court  to  interfere 
by  taking  possession  of  the  property,  and  the  complainants  will  be 
left  to  their  technical  right  of  foreclosure  in  the  usual  course  of 
proceedings.  Especially  will  the  court  decline  to  interfere  in  this 
way  when  the  result  of  such  interference  would  be  to  overturn  a 
funding  scheme,  which  all  but  a  small  fraction  of  the  bondholders 
have  agreed  upon  and  are  successfully  carrying  out,  and  to  break 
up  a  long  line  of  railroad  into  several  fragments  upon  which  the 
mortgages  were  originally  given,  to  the  manifest  injury  of  the 
whole  property. 

These  equities  of  the  great  body  of  the  mortgage  creditors  of  a 
railroad  company  are  well  considered  and  applied  by  Mr.  Justice 
442 


GROUNDS   FOR   THE   APPOINTMENT    OF   RECEIVERS.        [§  462. 

Harlan  in  the  recent  case  of  the  Wabash  Railway  Company,  be- 
fore the  Circuit  Court  of  the  United  States  for  the  Seventh  Cir- 
cuit.1 Each  of  the  six  companies  originally  owning  this  line  of 
road  had  at  different  times,  from  1853  to  1869,  executed  a  first 
mortgage  of  its  own  road,  the  aggregate  of  these  first  mortgages 
being  $9,400,000.  Second  mortgages  to  the  amount  of  $5,000,000 
were  executed  bj  several  of  the  original  divisions  of  the  road. 
Upon  a  consolidation  of  five  of  the  original  companies  a  consoli- 
dated mortgage  was  executed,  and  finally,  in  1873,  upon  a  further 
consolidation  with  these  companies  of  the  sixth  company,  another 
mortgage,  known  as  the  gold  mortgage,  was  executed.  Under  the 
latter  mortgage  there  was  a  foreclosure  sale  in  1876  ;  whereupon 
the  present  Wabash  Railway  Company  was  organized  from  the 
stockholders  of  the  old  company,  who  put  in  further  capital  to  the 
amount  of  $1,600,000.  A  further  mortgage  was  executed  by  the 
new  company  in  1877  ;  and  furthermore,  a  funding  scheme  was 
proposed  and  was  agreed  to  by  holders  of  more  than  four  fifths  of 
all  the  mortgage  debts.  The  main  feature  of  this  scheme  was 
the  funding  of  the  past  due  coupons  and  those  maturing  so  far 
ahead  as  November  1,  1878,  and  issuing  therefor  scrip  certificates, 
running  until  the  maturity  of  the  bonds  from  which  the  coupons 
were  detached,  bearing  interest  at  seven  per  cent,  annually,  such 
arrangement  not  to  impair  the  liens  of  the  bondholders  under  their 
respective  mortgages.  Provision  was  also  made  for  a  sinking 
fund.  Holders  of  bonds  to  the  amount  of  nearly  $100,000,  in 
1878,  brought  a  foreclosure  suit  and  applied  for  the  appointment 
of  a  receiver.  Mr.  Justice  Harlan,  denying  the  application  for  a 
receiver,  said:  "On  the  side  of  the  complainant  it  appears  that 
he  is  the  owner  of  certain  bonds,  for  the  security  of  which  mort- 
gages were  executed.  In  the  payment  of  interest  upon  those 
bonds  there  has  been  a  default.  The  present  managers,  in  execu- 
tion of  the  funding  scheme,  have  been  paying  interest  to  those 
bondholders  who  have  given  their  assent  to  that  scheme,  and  de- 
cline to  pay  interest  to  the  complainant  and  those  standing  with 
him,  who  refuse  to  become  parties  to  the  funding  scheme.  More; 
than  that,  the  present  managers  are  not  applying  all  of  the  net 
revenue  arising  from  the  operation  of  the  road  to  the  payment  of 
interest   in  tin;  order  of   priority  of  mortgages,  hut  are  applying  a 

1  Tysen  '•.  Wabash   By.  <'<>.,  Chicago    oral, and  it  is  to  be  regretted  that  only  a 
Times,  Joly  28, 1878.    This  opinion  was    newspaper  report  of  it  can  bo  presented. 

II:; 


§  462.]       THE   APPOINTMENT    AND   JURISDICTION    OF   RECEIVERS. 

portion  to  the  discharge  of  obligations  created  by  the  last  mort- 
gage upon  the  property.     Complainant  claims  that  this  is  a  mis- 
application of  the  income,  and  of  itself,  in  connection  with  the 
supposed  inadequacy  of  the  security  for  all  the  bonds,  would  make 
it  the  duty  of  the  court  to  take  charge  of  the  property  by  a  re- 
ceiver.    The  complainant  and  his  colleagues  insist  that  the  duty 
of  the  managers  is  to  keep  down  the  interest  on  the  first  mortgage 
to  the  extent  of  the  entire  net  income  of  the  company  ;  since  that 
course,  they  insist,  will  increase  the  value  of  the  subsequent  in- 
cumbrances, and  that  they  have  no  right,  as  a  condition  precedent 
to  the  performance  of  their  duty,  according  to  the  rights  of  the 
parties,  to  require  the  complainant  and  his  colleagues  to  submit  to 
a  funding  scheme  which  they  do  not  approve.     Upon  the  other 
hand  we  find  the  vast  majority  of  the  bondholders,  under  all  the 
mortgages,  insisting  that  the  funding  scheme  is  the  best  arrange- 
ment for  all  concerned,  and  that  under  that  arrangement,  faith- 
fully and  honestly  carried  out,  the  rights  of  all  the  parties  will  be 
best  secured.     The  company  invites  complainants  to  join  in  that 
scheme  with  the  large  majority  of  those  who  have  the  same  char- 
acter of  rights  with  them.     That  that  scheme  is  being  honestly 
adhered  to  and  will  be  carried  out  in  good  faith,  the  evidence  does 
not  permit  me  to  doubt.     Without  stopping  to  state  in  detail  all 
the  reasons  arising  out  of  the  evidence  for  the  conclusion  I  reach, 
I  will  say  that  I  cannot  doubt  that  the  appointment  of  a  receiver 
at  this  time  would  not  only  break  up  this  line  of  railway  into 
its  original  fragments,  but  would  overturn  the  funding  scheme, 
thereby  destroying  a  large  present  income  for  the  great  majority 
of  bondholders  entitled  to  preference.    It  would,  in  addition,  work 
the  financial  ruin  of  all  the  interests  involved  in  this  railroad  en- 
terprise, subordinate  to  the  first  mortgage  bondholders,  including 
the  interests  of  the  complainant  and  those   united  with  him  in 
this  suit.     Those  who  will  certainly  suffer,  and  who  will  suffer 
first,  will  be  the  stockholders  of  the  old  company,  and  who  be- 
came   the    stockholders   in    this    new  organization    by  advancing 
$1,600,000.     None  of  the  bondholders,  who  were  such  when  that 
$1,600,000  was  advanced  by  the  stockholders,  are  here  actively 
seeking  the  appointment  of  a  receiver.     Some  of  those  who  are 
conspicuously  moving  in  that  direction  became,  according  to  their 
evidence,  the  owners  of  bonds  quite  recently,  and,  as  we  may  infer 

from  the  evidence,  for  merely  speculative  purposes The 

444 


GROUNDS   FOR   THE   APPOINTMENT    OF   RECEIVERS.        [§  463. 

court  cannot,  in  deference  to  the  mere  technical  rights  of  a  very- 
small  minority  of  bondholders,  lay  its  hand  upon  a  railroad  over 
six  hundred  miles  in  length,  running  through  three  great  states, 
and  thereby  imperil,  if  not  destroy,  the  interests  of  those  whose 
rights  are  entitled  to  equal  consideration  with  those  of  the  com- 
plainant and  his  colleagues.  If  the  present  managers  of  the  road 
were  guilty  of  any  fraud  or  dishonest  practice  in  their  control 
of  this  property,  I  should  feel  differently.  While  there  are  dif- 
ferences between  them  and  some  of  the  bondholders,  as  to  cer- 
tain matters  connected  with  the  discharge  of  the  company's  obli- 
gations, those  differences  do  not  involve  the  integrity  of  those 
operating  the  railroads.  The  court  is  disposed  to  recognize  the 
absolute  necessity  of  large  discretion  in  the  management  of  such 
vast  property,  and  in  the  distribution  of  the  net  income  arising 
therefrom  ;  and  it  is  unwilling,  for  the  present  at  least,  to  make 
honest  differences  as  to  such  matters  the  basis  for  its  interference 
by  the  appointment  of  a  receiver." 

463.  In  a  case  where  it  was  shown  that  no  interest  had 
been  paid  on  the  first  mortgage  bonds  of  a  railroad  company 
for  about  ten  years,  and  that  the  road  had  in  the  mean  time 
changed  hands  once  or  twice,  the  court  regarded  these  facts  alone 
as  raising  a  suspicion  that  the  owners  of  the  road  had  been  very 
unfortunate,  or  very  reckless,  or  very  unmindful  of  their  duty, 
and  as  alone  affording  a  very  strong  ground  for  the  appointment 
of  a  receiver  on  the  motion  of  the  mortgagee.1  Another  impor- 
tant fact  established  in  the  case  was  that  the  mortgage  trustee 
and  some  of  the  bondholders,  on  several  occasions,  applied  to  the 
president  of  the  company  for  leave  to  examine  their  records,  with 
a  view  to  ascertaining  the  amount  of  the  company's  income  and 
to  the  disposition  made  of  it,  and  tin;  application  was  evaded  or 
denied.  In  view  of  the  withholding  of  such  necessary  and  proper 
information,  the  court  applied  the  maxim,  Omnia  prcesumuntur 
contra  sjyoliatoj-em. 

In  this  case  the  defendant  attempted  to  excuse  the  non-payment 
of  interest  upon  the  ground  that  tin-  company  had  been  obliged  t<> 
provide  for  other  roads  with  which  they  had  in  some  wa\  become 
consolidated;  in  constructing  additions  to  their  mad,  and  in  pur- 
chasing rolling  stock  and  equipping  ;i  long  line  of  road  ;  for  all  of 
1  Pullan  v.  Cincinnati  &  Chicago  Air  Line  K.  li.  <  !o.  i  Bias.  85,  ■»:. 

II.. 


§  463.]       THE   APPOINTMENT    AND   JURISDICTION    OF   RECEIVERS. 

which  purposes  a  very  large  expenditure  in  the  aggregate  had 
been  made.  But  the  court  said  that  even  honest  inability  to  pay 
a  debt  is  a  poor  excuse  when  one  is  sued  for  it ;  and  that  the  fact 
that  the  defendant  company  had  burdened  itself  with  a  vast  ex- 
penditure and  indebtedness  subsequently  to  the  mortgage,  instead 
of  being  any  reason  why  a  receiver  should  not  be  appointed,  was 
rather  one  reason  for  such  appointment,  inasmuch  as  the  company 
by  assuming  such  burdens  was  becoming  less  and  less  able  to  pay 
the  interest  upon  the  mortgage.  "  But  the  most  remarkable  feat- 
ure in  the  answer,"  said  Judge  McDonald,  giving  the  decision  of 
the  court,  "  as  it  seems  to  me,  is,  that  it  does  not,  that  I  can  see, 
present  any  feasible  scheme  for  paying  this  interest  at  all.  In- 
deed, so  far  as  appears  from  the  answer,  it  does  not  seem  that  the 
interest  will  ever  be  paid  voluntarily.  A  strong  desire  is  evinced 
to  extend  the  road  and  raise  vast  sums  for  equipping  it ;  but  no 
corresponding  anxiety  is  shown  to  do  anything  for  the  first  mort- 
gage bondholders.  The  answer  evidently  evinces  a  design  to 
postpone  this  matter  till  the  very  last.  Under  all  the  circum- 
stances, I  think  the  appointment  of  a  receiver  would  be  very 
proper,  if  the  bill  had  averred  that  the  mortgaged  property  was 
not  a  sufficient  security  for  the  debt ;  and  that  without  a  receiver 
the  bondholders  are  in  danger  of  irreparable  injury.  I  suppose 
that  in  no  case  of  a  mortgage  ought  a  Court  of  Chancery  to  appoint 
a  receiver,  if  the  mortgaged  property  is  of  such  value  as  to  render 
it  clear  that,  on  a  foreclosure  and  sale,  the  debt  could  all  be  made. 
In  the  present  case,  the  mortgaged  property  would  probably  not 
bring  so  much  on  sale."  In  the  case  before  the  court  the  mort- 
gage covering  the  earnings  of  one  section  of  a  road,  which  was 
one  fourth  part  in  length  of  the  whole  road,  a  receiver  was  ap- 
pointed whose  duty  it  was  made  to  examine  the  books  and  affairs 
of  the  road,  to  ascertain  its  net  earnings  monthly,  and  receive  one 
fourth  part  of  the  net  earnings  of  the  whole  line,  and  pay  this 
into  court  for  the  use  of  the  bondholders.  The  company  and  its 
officers  were  ordered  to  give  the  receivers  all  proper  facilities  for 
this  examination,  and  to  render  full  and  fair  monthly  statements 
to  the  receiver  under  oath,  and  pay  over  to  him  every  month  a 
fourth  part  of  the  net  proceeds. 

In  a  case  before  Judge  McLean,  in  the  Circuit  Court  of  the 
United  States,1  it  appeared  on  a  motion  for  a  receiver  in  a  similar 
1  Williamson  v.  New  Albany  R.  R.  Co.  1  Biss.  198. 
446 


GROUNDS   FOR   THE   APPOINTMENT    OF   RECEIVERS.        [§§  464,  465. 

case  that  the  defendant  had  failed  to  pay  the  semi-annual  interest 
which  had  fallen  due  within  six  months  of  the  time  of  the  filing 
of  the  bill ;  and  principally,  if  not  solely,  for  that  single  and  re- 
cent failure,  the  court,  while  overruling  the  motion  for  a  receiver, 
did  what  was  nearly  equivalent  to  appointing  one,  in  placing  the 
road  so  far  under  the  control  of  the  court  as  to  require  that  com- 
pany to  make  monthly  reports  of  the  net  income  of  the  road,  and 
to  pay  a  certain  proportion  of  it  into  court  every  month  for  the 
use  of   the  bondholders. 

464.  It  is  ground  for  the  appointment  of  a  receiver  that 
the  mortgaged  property  is  liable  to  be  seized  on  executions. — 
The  fact  that  a  railroad  company  is  insolvent,  and  is  owing  a  large 
floating  debt  which  its  creditors  are  rapidly  reducing  to  judgments, 
has  been  regarded  as  ground  for  the  appointment  of  a  receiver 
at  the  instance  of  mortgage  creditors.  Upon  such  judgments  the 
railroad  and  its  appurtenances  might  be  seized  piecemeal  and  the 
security  of  the  mortgage  creditors  destroyed.  It  is  true  that  the 
seizure  of  property  which  is  security  for  the  mortgage  debts  may 
be  restrained  by  injunction,  but  it  might  be  necessary  to  issue  as 
many  injunctions  as  there  are  creditors.  Such  a  state  of  facts  is 
regarded  as  calling  for  the  appointment  of  a  receiver.1 

465.  The  conduct  of  the  officers  of  a  corporation  may  be 
such  as  to  require  the  appointment  of  a  receiver  to  take  from 
them  the  control  of  the  company's  affairs.  Thus  the  court  will 
appoint  a  receiver  upon  the  application  of  general  creditors  of  a 
corporation,  whose  directors  have  unlawfully  and  fraudulently  ex- 
ecuted a  mortgage  of  its  property  to  secure  its  stockholders,  the 
company  being  insolvent,  and  it  being  necessary  to  preserve  its 
property  pending  the  litigation.2 

A  receiver  will  be  appointed  upon  allegations  of  gross  acts  of 
fraud  on  the  part  of  the  officers  of  a  railroad  company  by  whom 
its  property  is  likely  to  be  squandered  and  embezzled.  The  court 
in  such  ease  will  act  upon  the  application  of  bondholders,  oi  cred- 
itors, or  of  stockholders.  The  officers  of  the  Memphis,  El  Paso, 
and   Pacific  Kailr<»ad  Company,  a  corporation  of  Texas,  vrere  en- 

»  South  Carolina  K;iilro:i<l  in  re,  before        2  Avery  v.  Bleea  Manufacturing  (.'->.  ^ 
Judge  Bond  "f  the  Fourth  Circuit,  11  Chi-     N.  J.'Eq.  412. 
cago  Lc^.d  tfowa,  8. 

117 


§  466.]       THE   APPOINTMENT    AND   JURISDICTION    OF   RECEIVERS. 

joined,  and  a  receiver  of  its  property  appointed,  upon  a  bill  filed 
by  a  stockholder,  a  bondholder,  and  the  trustees  for  bondholders, 
under  the  mortgages  of  the  company,  on  behalf  of  themselves  and 
all  other  stockholders,  creditors,  and  bondholders  of  the  company.1 
An  abuse  of  the  corporate  franchise,  aside  from  the  insolvency  of 
the  corporation,  may  be  ground  for  such  interference.2 

466.  The  application  of  the  income  of  a  road  to  completing 
and  operating  it  is  not  a  misapplication  of  the  funds  of  the 
road  which  calls  for  the  appointment  of  a  receiver,  especially 
when  so  made  with  the  consent  and  by  the  advice  of  a  large  num- 
ber of  the  bondholders.  In  a  case  before  the  Circuit  Court  of  the 
United  States  for  the  District  of  Indiana,3  Mr.  Justice  McLean  re- 
fused to  appoint  a  receiver  in  such  a  case,  having  regard  not  only 
to  the  interests  of  the  bondholders  but  also  to  the  general  credit- 
ors of  the  company,  who  were  deemed  to  be  entitled  to  some  in- 
dulgence in  the  payment  of  the  deferred  interest,  because  the 
completion  of  the  road  for  which  the  floating  debt  was  incurred 
had  added  much  to  the  value  of  the  mortgage  security,  and  had 
increased  the  profits  of  the  road;  and  especially  as  the  work  was 
done  on  the  recommendation  of  the  mortgage  trustee  who  sought 
the  appointment  of  a  receiver.  "  No  change  of  agency  could  in- 
crease, I  am  convinced,  the  efficacy  of  that  already  employed  on 
the  road.  A  sale  of  the  property  would,  in  all  probability,  sacri- 
fice the  stock  of  the  road,  amounting  to  between  two  and  three 
millions  of  dollars,  and  more  than  half  if  not  two  thirds  of  the 
property  of  the  bondholders.  It  might  enable  some  one  or  more 
persons  to  purchase  the  road  at  an  almost  nominal  consideration. 
These  consequences,  I  admit,  are  not  to  stand  in  the  way  of  an 
equitable  right,  enforced  under  circumstances  of  fairness  and  jus- 
tice. But  if  such  results  may  be  avoided  by  a  short  postponement 
of  the  interest,  and  under  a  prospect  of  a  speedy  payment,  I  hold 
myself  authorized  to  do  so,  under  the  facts  above  stated.  But  I 
will  afford  to  the  bondholders  every  reasonable  assurance  that  can 
be  required.  I  will  admit  an  order  to  be  entered  that  the  motion 
of  the  complainant  for  the  appointment  of  a  receiver  be  denied, 

1  Forbes  v.  Memphis,  El  Paso  &  Pacific  3  Williamson  v.  New  Albany,  &c,  R. 
R.  R.  Co.  2  Woods,  323.  R.  Co.  1  Biss.  198. 

2  City  of  Rochester  v.  Bronson,  41  How. 
(N.  Y.)  Pr.  78. 

448 


GROUNDS   FOR    THE    APPOINTMENT    OF   RECEIVERS.  [§  467. 

and  that  the  said  company,  from  and  after  the  first  day  of  Janu- 
ary next,  set  aside  one  half  of  the  net  earnings  of  the  road  for 
the  payment  of  the  interest  of  the  bonded  debt  of  said  company, 
the  other  half  to  be  applied  to  the  payment  of  the  floating  debt 
of  the  company.  A  report  of  the  gross  and  net  earnings  to  be 
made  to  the  court  monthly."  This  order  was  not  to  be  under- 
stood as  preventing  a  renewal  of  the  motion  for  a  receiver  upon 
any  new  statement  of  facts. 

467.  Refusal  of  trustees  to  perform  the  trust.  —  It  has  al- 
ready been  noticed  that  the  usual  ground  of  application  for  the 
appointment  of  a  receiver  of  a  railway,  in  behalf  of  bondholders, 
is  that  the  mortgagor  is  insolvent  and  the  property  inadequate  se- 
curity for  the  mortgage  debt.  But  there  are  other  grounds  upon 
which  the  courts  will  exercise  this  power,  aside  from  any  appre- 
hended loss  to  the  persons  secured.  The  refusal  of  the  trustees 
under  the  mortgage  deed  to  perform  the  trust,  or  their  misconduct 
in  the  performance  of  it,  is  sufficient  ground  for  the  interference 
of  the  court,  upon  the  application  of  the  bondholders,  or  of  any 
considerable  part  of  them.  Thus,  upon  a  default  in  the  payment 
of  interest,  if  the  trustees,  without  good  reason,  refuse  to  take 
possession  of  the  property  and  sell  it  in  accordance  with  the 
provisions  of  the  mortgage  deed,  the  court  will  require  them  to 
execute  the  trust,  or  will  appoint  a  receiver.1 

Where  the  mortgage  trustees,  for  more  than  five  months  after 
notice  to  them  by  a  majority  of  the  bondholders,  and  request  by 
them  to  proceed  to  execute  the  trust  by  taking  possession  and  sell- 
ing the  property,  neglected  to  take  any  steps  towards  the  execu- 
tion of  the  trust,  although  the  deed  of  trust  made  it  their  duty 
to  do  so,  the  bondholders  have  a  clear  right  to  apply  to  the  court 
to  compel  the  trustees  to  act,  or  to  appoint  some  one  who  will. 
This  right  is  independent  of  any  probable  deficiency  of  the  trust 
property  to  pay  the  debts  secured  by  the  deed  of  trust.  The 
application  for  a  receiver  in  such  a  case  is  simply  a  demand  by 
the  beneficiaries  of  tin;  deed  that  the  trust  be  executed  according 
to  it.s  terms.2 

1  Wilmer  v.  Atlanta  &  Richmond  Air  -  Per  Judge  Woods,  in  Wilmer  v.  At- 

Line   By.  Co.   '±   Woods,  409;  Jenkins  v.  lanta  &  Richmond  Air  Lino  By.  Co.su- 

Jenkina,  l  Paige  N.  V.  Ch,  243.  pro. 

2'J  449 


§§  468,  469.]       THE   APPOINTMENT    AND   JURISDICTION    OF   RECEIVERS. 

468.  A  receiver  may  in  some  cases  be  appointed  merely 
for  the  purpose  of  securing  the  profits  accruing  from  the  use  of 
the  property,  without  any  ultimate  purpose  of  obtaining  assets  by 
a  sale  of  the  property,  as  for  instance  when  the  security  provided 
for  does  not  give  the  creditor  any  right  to  sell  the  property  itself, 
but  merely  a  right  to  take  it  into  possession  and  use  it  until  the 
claim  is  satisfied  from  the  net  profits.  In  such  case  the  creditor 
may  be  unable,  without  the  assistance  of  the  court,  to  obtain  and 
hold  possession  of  the  property,  especially  when  this  is  a  long  line 
of  railroad  with  its  appurtenances  ;  and  the  creditor  himself  gen- 
erally seeks  the  aid  of  a  receivership,  and  the  court  as  generally 
grants  such  aid.  But  even  when  the  creditor  does  not  seek  this 
aid,  but  merely  to  be  put  in  possession  of  the  income  of  a  railroad 
which  is  the  stipulated  security,  the  court  may,  in  behalf  of  the 
debtor,  decline  to  put  the  creditor  into  the  personal  management 
of  a  road,  for  fear  that  such  possession  once  gained  by  the  creditor 
may  be  continued,  through  his  mismanagement  of  the  property 
or  otherwise,  longer  than  would  be  necessary  if  the  property  were 
managed  by  a  disinterested  and  efficient  officer  of  the  court,  who 
would  be  amenable  to  the  court  for  a  proper  administration  of  the 
road,  a  proper  accounting  for  the  proceeds,  and  a  proper  applica- 
tion of  them  to  the  payment  of  the  debt  secured.  In  such  cases 
a  receivership  is  often  indispensable  to  the  enforcement  of  the  lien, 
and  to  the  protection  at  the  same  time  of  the  rights  and  interests 
of  all  parties  interested  in  the  property. 

469.  Appointment  of  receiver  of  insolvent  corporation  to 
sell  its  property.  —  In  New  Jersey  it  is  provided  by  statute  that 
when  the  propei'ty  of  an  insolvent  corporation  in  the  hands  of  a 
receiver  is  incumbered  with  mortgages  or  other  liens,  the  legality 
of  which  is  brought  in  question,  and  the  property  is  of  a  charac- 
ter materially  to  deteriorate  pending  the  litigation,  the  Court  of 
Chancery  may  order  the  receiver  to  sell  it  clear  of  incumbrances 
at  public  or  private  sale  for  the  best  price  that  can  be  obtained, 
bringing  the  money  into  court,  there  to  remain  subject  to  the  same 
liens  and  equities  of  all  parties  in  interest  as  was  the  property 
before  it  was  sold,  and  to  be  disposed  of  as  the  court  may  by  its 
decree  direct.1  Under  this  statute  it  is  held  that  a  sale  may  be 
ordered,  although  the  litigation  be  not  distinctly  and  solely  as  to 

i  1  E.  S.  1877,  p.  192,  §  84 ;  Nix.  Dig.  Supplement,  409 ;  Act  of  March  13,  1866. 
450 


GROUNDS   FOR   THE   APPOINTMENT   OF   RECEIVERS.        [§  469. 

the  legality  or  validity  of  the  incumbrances.  It  is  sufficient  that 
there  is  a  dispute  as  to  the  extent  to  which  a  mortgage  is  an  in- 
cumbrance.1 As  to  the  mode  of  sale,  the  receiver,  under  this 
statute,  should  be  vested  with  large  discretional  powers.2 

The  object  of  the  legislature  in  these  acts  is  declared  to  be  the 
prevention  of  loss  by  the  depreciation  in  value  of  the  property 
pending  protracted  litigation.  The  mischief  and  the  remedy  are 
plainly  apparent  upon  the  face  of  the  act.  It  was  not  intended 
to  confine  the  remedy  to  mischief  arising  from  litigation  of  any 
particular  character,  but  to  all  litigation  between  incumbrancers 
respecting  the  validity,  extent,  or  priority  of  their  liens.  The  act 
must  be  so  construed  as  to  suppress  the  mischief  and  advance  the 
remedy.3 

It  has  been  urged  that  the  franchises  of  a  corporation  are  not 
within  the  words  of  this  act;  that  they  are  not  property,  and 
therefore  that  they  cannot  be  sold  by  virtue  of  the  act.  Techni- 
cally speaking,  franchises  are  property,  but  they  are  property  of  a 
peculiar  character,  arising  only  from  legislative  grant,  and  are  not, 
in  ordinary  cases,  subject  to  execution  or  to  sale  and  transfer,  even 
in  payment  of  the  debts  of  the  corporation,  without  the  assent  or 
authority  of  the  legislature.  But  construing  the  original  and  sup- 
plementary acts  together,  it  is  apparent  that  the  chancellor  has 
discretionary  power  to  order  a  sale  of  the  franchises,  as  well  as  of 
the  property  of  insolvent  corporations,  and  that  he  may  order  a 
sale  of  both  clear  of  incumbrances.4 

As  between  trustees  for  first  mortgage  bondholders  of  an  insol- 
vent railroad  company  who  are  seeking  to  foreclose  an  overdue 
mortgage  upon  property  of  far  less  value  than  the  amount  of  the 
debt,  and  a  receiver  who  applies  under  this  act  for  an  order  of 
sale  of  the  property  and  franchises  free  from  the  lien  of  the  in- 
cumbrances, the  trustees  are  entitled  to  the  possession  of  the  prop- 
erty, and  to  apply  the  income,  if  any,  to  the  reduction  of  their 
debt,  and  a  court  of  equity  will  not  interfere  with  such  right, 
unhss  the  equities  of  other  parties  are  likely  to  be  prejudiced. 
The  validity  and  extent  of  the  mortgage  can  be  best  determined 
in  the  foreclosure  suit,  and  the  property  can  be  sold  to  better  ad- 

1  Middlcton  v.  West  N.  J.  Line  R.  R.  3  Randolph  v.  Lamed,  27  N.  J.  Eq.  557. 
Co.  26  N.  J.  Bq.  269,  270.  «  Randolph  v.  Lamed,  supra. 

2  Potts  v.  N.  J.  Arms  &  Ordnance  Co. 
17  N.  J.  Bq.  305. 

451 


§  470.]       THE   APPOINTMENT    AND   JURISDICTION   OF   RECEIVERS. 

vantage  after  these  questions  are  disposed  of.  In  such  a  case  no 
one  but  the  mortgagees  are  interested,  and  if  they  wish  to  delay 
the  sale  pending  the  litigation,  there  is  no  reason  why  their  prayer 
should  not  be  granted.1 

470.  Appointment  of  receiver  to  operate  road.  —  It  is  also 
provided  by  statute  in  New  Jersey2  that  if  any  railroad  company 
fails  to  run  daily  trains  on  any  part  of  its  road  for  the  space  of  ten 
days,  then  the  chancellor,  upon  petition  of  any  citizens  of  the 
state,  and  due  proof  of  the  facts,  shall  speedily  appoint  a  receiver, 
who  by  order  of  the  chancellor  is  empowered  and  required  to  take 
possession  of  all  the  real  and  personal  property  of  such  company, 
and  to  operate  the  road  and  transact  its  ordinary  business  in  the 
transportation  of  freight  and  passengers  for  such  time  as  the  chan- 
cellor may  direct ;  and  all  expenses  incurred  thereby  are  made  a 
first  lien  on  all  the  earnings  thereof  prior  to  any  other  claim,  and 
the  surplus,  if  any,  is  distributed  as  the  chancellor  may  direct. 

This  act  is  the  creature  of  public  considerations  altogether. 
When  a  receiver  has  been  appointed  under  it  in  behalf  of  the 
public,  the  possession  of  the  road,  when  given  up,  should  be  re- 
turned to  the  company  from  which  it  was  taken.  The  right  of 
possession  as  between  two  companies,  each  claiming  such  right, 
cannot  be  determined  upon  the  petition  of  either.  A  claim  of 
paramount  right  of  possession  by  a  company  other  than  that  from 
whose  possession  the  road  was  taken  by  force  of  a  proceeding  of 
this  kind  is  a  matter  to  be  settled  between  the  opposing  parties  in 
due  course  of  law  upon  the  surrender  of  the  road  to  the  company 
from  which  it  was  taken.3 

When  a  receiver  has  been  appointed  under  this  act,  his  proceed- 
ings will  not  be  stayed  to  allow  an  inquiry  into  the  causes  of  the 
company's  failure  to  operate  the  road,  and  proof  that  such  failure 
was  not  attributable  to  the  fault  of  the  company,  but  to  the  act  of 
lawless  persons,  by  whom  the  rolling  stock  was  by  force  taken  out 
of  their  possession  and  withheld  from  them  with  a  view  to  compel- 
ling the  payment  of  wages  due  from  another  company.  By  the 
terms  of  the  statute  it  is  obligatory  upon  the  court  to  take  posses- 
sion of  a  road  and  operate  it,  in  order  to  relieve  the  public  from  the 

1  Randolph  v.  Larned,  supra.  8  Long  Branch  &  Sea  Shore  R.  R.  Co. 

2  Laws  1874,  ch.  27,  §  1  ;  2  R.  S.  1877,     v.  Sneden,  26  N.  J.  Eq.  539. 
p.  943.  See,  also,  1  R.  S.  1877,  p.  196,  §  106. 

452 


GROUNDS   FOR   THE   APPOINTMENT    OF   RECEIVERS.         [§  471. 

effect  and  consequences  of  the  apparent  dereliction  of  duty  on  the 
part  of  the  owners.  Whenever  the  exigency  shall  have  ceased, 
the  court  will  restore  the  road  to  the  owners.  But  until  the  rail- 
road company  satisfies  the  court  of  its  willingness  and  ability  to 
operate  the  road,  the  receiver  will  be  continued  in  possession. 
The  public  necessity  is  paramount.1 

471.  "When  property  is  in  the  hands  of  trustees  who  hold 
their  office  ex  officio  as  high  public  officers  of  the   state,  and 
especially  where  one  part  of  the  trust  involves  duties  of  a  public 
character,  the  court  will  be  very  reluctant  to  take  the  fund  out  of 
their  hands,  and  place  it  in  the  hands  of   a  receiver,  and  will  not 
do  so  except  for  the  most  cogent  reasons,  such  as  gross  fraud  and 
imminent  danger  of  the  trust  fund.2     The  legislature  of   Florida 
vested  certain  public  lands,  including  all  swamp  and  overflowed 
lands  belonging  to  the  state,  in  the  governor,  comptroller,  treas- 
urer, attorney  general,  and  register,  as  trustees,  to  constitute  an 
internal  improvement  fund,  and  to  serve,  amongst  other  things,  as 
a  guaranty  of  bonds  to  be  issued  by  certain  designated  railroad 
companies,  of  which  the  Florida  Railroad  Company  was  one,  for 
the  procurement  of  iron  rails  and  rolling  stock.     A  certificate  of 
guaranty  was  to  be  placed  on  the  bonds.     In  case  the  interest  on 
these  bonds,  and  one  per  cent,  per  annum  for  a  sinking  fund,  were 
not  paid  by  any  of  the  companies,  the  trustees  were  authorized  to 
take  possession  of  and  sell  the  road,  appurtenances,  and  franchises 
of  the  company  in  default,  and  to  apply  the  proceeds  in  purchas- 
ing up  the  bonds,  or  incorporating  them  with  the  sinking  fund. 
The  powers  given  to  the  trustees  were  large  and  various.     They 
were  authorized  to  fix  the  prices  of  the  lands,  to  make  arrange- 
ments for  draining  them,  and  to  promote  their  settlement  and 
cultivation  by  allowing  preemptions  and  other  modes  of  encour- 
agement.     The  Florida  Railroad  Company  having  issued  a  large 
number  of  bonds,  which  were  duly  indorsed  by  the  trustees,  failed 
to   pay  any  instalments  of  interest  or  of  the  sinking  fund,   the 
trustees  seized  and  sold  the  road,  and  with  the  proceeds  of  the 
sale  purchased  and  cancelled  a  large  proportion  of  the  outstanding 
guaranteed  bonds  of  the  company.    A  holder  of  bonds  of  the  com- 
pany not  so  purchased   filed  a  bill  in  the  Circuit' Court  of  the 

i  Long  Branch  &  Sea  Shore  It.  R.  Co.        2  Vose  v.  Reed,  I  Woods,  G47. 
in  re,  24  N.J.  lvj.  398. 

•1.-,:; 


§  472.]       THE   APPOINTMENT   AND   JURISDICTION   OF   RECEIVERS. 

United  States  for  the  Northern  District  of  Florida,  for  relief 
against  the  trustees,  whom  he  charged  with  mismanaging  the 
funds,  and  against  other  parties  and  corporations,  whom  he 
charged  with  complicity  in  such  mismanagement  by  obtaining 
fraudulent  purchasers  of  the  lands  at  nominal  prices.  He  also 
prayed  for  an  injunction  and  the  appointment  of  a  receiver  of  the 
trust  fund.  An  injunction  was  granted,  awaiting  a  hearing  of 
the  case  upon  its  merits.  Upon  the  question  of  appointing  a  re- 
ceiver, Mr.  Justice  Bradley,  delivering  the  opinion  of  the  court, 
after  speaking  of  the  objects  of  the  trust  as  being  the  develop- 
ment of  the  resources  of  the  state,  the  reclamation  of  the  lands,  as 
well  as  promoting  railroad  improvements,  said  : 1  "Now  these  pub- 
lic and  political  objects  of  the  trust  make  it  extremely  fitting  that 
the  chief  executive  officers  of  the  state  should  administer  the  fund. 
And  it  must  be  a  very  strong  case,  indeed,  which  will  induce  the 
court  to  take  the  property  out  of  their  hands  and  put  it  into  the 
hands  of  its  own  officers.  The  legislature  has  seen  fit  to  intrust 
the  chief  officers  of  the  state  with  these  important  duties,  and  it 
would  show  a  great  disrespect  to  this  coordinate  branch  of  the 
government  for  the  judiciary,  on  light  grounds,  to  displace  these 
officers  from  the  trust,  and  to  put  appointees  of  its  own  in  their 
stead."  The  court  will  in  such  case  resort  to  every  other  coer- 
cive means  of  compelling  the  trustees  to  perform  their  duty  before 
resorting  to  the  extreme  measure  of  a  receivership. 

472.  Whether  the  Supreme  Court  of  the  United  States 
would  in  any  case  appoint  a  receiver  pending  an  appeal  in  that 
court  is  an  undecided  point ;  but  upon  a  motion  for  a  receiver  of 
the  Pacific  Railroad  in  Missouri,  the  court  declined  to  make  the 
appointment  upon  the  showing  made  in  that  case.2  Appeals  in 
equity  are  heard  upon  the  pleadings  and  proofs  below.  No  new 
evidence  can  be  admitted,  and  the  pleadings  cannot  be  amended. 
A  decree  of  foreclosure  and  sale  had  been  entered  in  the  Circuit 
Court  by  consent  of  the  company.  The  solicitor  of  the  company 
bought  the  property  at  the  sale,  paying  the  purchase  principally 
in  bonds  of  the  company,  secured  by  the  foreclosed  mortgage. 
The  owners  of  the  bonds  thus  paid  over  organized  themselves 
into  a  new  company,  and  the  property  was  assigned  to  them. 

1  Vose  v.  Reed,  supra.  95  U.  S.  1 ;  Pacific  Railroad  v.  Missouri 

2  Pacific  R.  R.  of  Missouri  v.  Ketchum,     Pacific  R.  R.  Co.  15  Am.  Railw.  R.  80. 

454 


GROUNDS   FOR   THE   APPOINTMENT    OF   RECEIVERS.         [§§  473,  474. 

The  receiver  who  had  been  appointed  in  the  Circuit  Court  pend- 
ing the  proceedings  was  discharged,  and  was  directed  to  turn  over 
all  the  property  in  his  hands  to  the  new  corporation.  Soon  after 
this  the  new  company  made  a  new  mortgage  for  a  greater  sum 
than  that  which  had  been  cancelled  by  foreclosure,  and  delivered 
the  bonds  principally  to  the  parties  who  had  been  holders  of  the 
bonds  surrendered  in  payment  of  the  purchase  money.  The  stock- 
holders of  the  old  company,  at  a  meeting  soon  after  this,  repudi- 
ated the  action  of  their  directors  in  allowing  a  foreclosure  decree 
to  be  taken  ;  and  an  appeal  was  accordingly  taken  from  the  de- 
cree of  foreclosure.  The  Supreme  Court  refused  to  grant  the 
relief  asked,  because  the  pleadings  did  not  disclose  the  defence 
sought  to  be  made.  Although  the  sale  was  in  form  to  the  com- 
pany's solicitor,  it  was  in  reality  to  the  bondholders  for  whom  the 
foreclosure  was  had ;  and  it  appeared  affirmatively  that  the  orig- 
inal decree  was  by  consent,  and  no  irregularity  in  the  sale  was 
complained  of  in  the  court  below. 

473.  The  appointment  of  a  receiver  in  such  case  may,  per- 
haps, be  more  appropriately  made  by  the  Circuit  Court  from 
which  the  litigation  was  taken  to  the  Supreme  Court.  It  might 
be  inconvenient,  if  not  impracticable,  for  the  Supreme  Court  to 
pass  such  interlocutory  orders  as  would  be  necessary  to  protect 
the  property  in  litigation.  The  Circuit  Court  could,  however,  act 
with  a  full  knowledge  of  the  facts,  and  of  the  practice  in  such 
cases.  That  court,  moreover,  has  the  ultimate  disposition  of  the 
property  under  the  direction  of  the  Supreme  Court.  Such  a 
course  was  pursued  by  the  Circuit  Court  sitting  in  Georgia  in  a 
suit  by  Henry  Clews  against  The  Cherokee  Railroad  Company. 
While  the  case  was  pending  before  the  Supreme  Court  of  the 
United  States,  occasion  arose  for  the  appointment  of  a  receiver 
t<>  prevent  the  waste  and  destruction  of  the  property.  The  ap- 
pointment  was  made  by  the  Circuit  Court.  The  Supreme  Court 
of  Georgia,  upon  a  question  whether  a  receiver  appointed  in  a 
court  of  that  state  should  be  sustained  as  against  the  receiver  ap- 
pointed by  the  Circuit  Court,  was  of  opinion  that  the  latter  court 
had  properly  made  the  appointment.1 

474.  The  general  rule  to  be  deduced  from  the  many  cases 
1  May  v.  Printap,  Supreme  Court  of  Georgia,  August  T.  1877,  5  Reporter,  392. 

455 


§  475.]       THE   ANOINTMENT    AND   JURISDICTION   OF   RECEIVERS. 

showing  what  facts  and  circumstances  justify  the  appointment  of 
a  receiver  in  behalf  of  a  mortgagee  is,  that  the  appointment  will 
be  made  when  the  security  is  inadequate,  or  there  has  been  waste 
or  misapplication  of  the  property  by  the  mortgagor  or  other  party 
in  possession  ;  and  also  when  there  is  danger  of  such  abuse  on  the 
mortgagor's  part,  and  of  consequent  loss  to  the  mortgagee.1  In- 
adequacy of  security  is  always  an  essential  ingredient  of  a  case 
that  calls  for  such  interference,  unless  it  be  shown  that  there  is 
imminent  danger  of  the  sacrifice  or  loss  of  an  adequate  security. 
There  is  a  well  defined  distinction  as  to  the  right  to  have  a 
receiver  appointed  between  a  mortgage  which  pledges  the  tolls 
and  income  of  the  property,  and  one  which  does  not.  When 
there  is  such  a  pledge  of  the  rents  and  profits,  upon  a  default  and 
petition  of  the  great  body  of  the  bondholders  or  of  trustees  rep- 
resenting them,  a  receiver  is  appointed  very  much  as  of  course.2 
It  has  been  suggested  that,  in  such  case,  instead  of  the  court's  as- 
suming the  management  of  the  road,  it  may  sometimes  be  expe- 
dient to  require  the  earnings  of  the  road  to  be  paid  over  to  a 
receiver,  to  be  held  and  distributed  by  him,  —  the  interference  of 
others  with  the  management  of  the  road  being  prevented  mean- 
while by  injunction.3 

475.  As  a  general  rule,  a  receiver  appointed  in  a  prior 
suit  should  not  be  displaced  by  the  appointment  in  a  sub- 
sequent suit  of  a  receiver  of  the  same  subject  matter  by  the 
same  court.  The  receiver  does  not  represent  the  plaintiff  in  the 
suit,  but  the  court.  Unless  there  be  special  occasion  for  displac- 
ing the  receiver  first  appointed,  the  proper  course  of  practice  is 
to  extend  the  receivership  in  the  first  suit  over  the  second,  sub- 
ject to  the  legal  and  equitable  claims  of  all  parties,  and  the  rights 
of  the  parties  in  each  suit  are  substantially  the  same  as  if  differ- 
ent persons  had  been  appointed  at  the  several  times,  when  such 
receivership  was  granted.  If,  however,  a  different  receiver  be  ap- 
pointed in  the  second  suit,  the  receiver  in  the  first  suit  is  dis- 
placed and  must  deliver  the  property  to  the  receiver  appointed  in 
the  second.4 

1  Keep  v.  Mich.  Lake  Shore  E.  R.  Co.  8  Per  Manning,  J.,  in  Meyer  v.  John- 
6  Chicago  Legal  News,  101.  ston,  53  Ala.  237,  350. 

2  Des  Moines  Gas  Co.  v.  West,  44  Iowa,  *  Florida  v.  Jacksonville,  Pensacola  & 
23,  25.  Mobile  R.  R.  Co.  15  Fla.  201,  276. 

456 


GROUNDS  FOR  THE  APPOINTMENT  OF  RECEIVERS.    [§§  476-478. 

476.  As  a  general  rule  a  receiver  should  not  be  appointed 
without  notice  to  the  mortgagor  or  other  party  in  possession  and 
an  opportunity  to  be  heard.  It  would  be  a  case  of  great  urgency, 
and  where  delay  would  involve  a  serious  injury  to  the  property  in 
controversy,  that  would  justify  an  exception  to  this  rule.  During 
the  interval  between  the  application  for  the  appointment  of  a  re- 
ceiver and  the  hearing  after  notice,  sufficient  protection  of  the 
plaintiff's  rights  can  usually  be  afforded  by  an  injunction  or  other 
restraining  order.1 

Upon  an  application  for  a  receiver,  the  mortgagee  is  not  re- 
quired to  establish  conclusively  his  right  to  recover,  but  merely  to 
show  a  probable  right,  especially  when  he  is  entitled  by  the  terms 
of  the  mortgage  to  the  income,  rents,  and  profits  of  the  mortgaged 
property.2 

477.  When  an  individual  bondholder  or  a  judgment  cred- 
itor seeks  the  appointment  of  a  receiver  he  must  sue  on  behalf 
of  himself  and  all  other  persons  who  have  interests  of  the  same 
kind  or  class  as  his  own.  In  such  a  proceeding,  he  acts  as  trustee 
for  all  others  who  are  entitled  to  be  paid  pari  passu  with  him.3 
It  is  not  necessary  that  the  other  parties  in  interest  should  concur 
in  the  application.4 

478.  If  the  mortgaged  premises  are  in  the  possession  of  a 
tenant  or  lessee,  it  is  necessary  to  make  him  a  party  to  the  suit 
before  a  receiver  of  tin;  property  can  be  appointed.  If  he  be  not 
made  a  party,  there  is  no  objection  to  the  appointment  of  a  re- 
ceiver of  the  rents  and  profits  to  whom  the  tenant  could  be  re- 
quired to  attorn  ;  but  such  receiver  would  have  no  power  to  mo- 
lest the  possession  of  the  tenant. 


5 


1  Florida  v.  Jacksonville,  Pcnsacola   &  2  Des    Moines    Gas    Co.    v.   West,  44 

Mobile  R.  R.  Co.  15  Fla.  201  ;  and  see  Iowa,  23. 

Cincinnati,  Sandusky  &  Cleveland   R.  R.  8  Bowen  v.  Brecon  Ry.  Co.  L.  R.  3  Eq. 

Co.  v.  Sloan,  31  Ohio  St.  1  ;  S.  C.  15  Am.  541 ;  Potts  v.  Warwick    &    Birmingham 

Railw.  R.  37G;  High  on  Receivers,  §§  111,  Canal  Co.  Kay,  142  ;  Fripp  v.  Chard  Ry. 

112.   In  Louisianathe  appointment  of  are-  Co.  11  Hare,  241;  Gravenstine's  Appeal, 

ceiver  of  a  corporation  on  an  ex  parte  ap-  19  Pa.  St.  310. 

plication  without  alleging  its  insolvency  '  Fripp  v.  Chard  Ry.  Co.  supra. 

is  held  to  be  absolutely  null.    Turgeaao.  &  Keep  v.  Michigan   Lab-  Shore  R.  R. 

Brady,24  La.  Ann.  348.  Co.  6  Chicago  Legal  News,  101  ;   Sea  Ins. 

Co.  v.  Stebbins,  8  Paige  (N.  V.),  565. 

i;.t 


§§  479,  480.]       THE   APPOINTMENT    AND   JURISDICTION   OF   RECEIVERS. 

479.  The  fact  that  a  corporation  is  insolvent  will  not  au- 
thorize the  corporation  itself  to  apply  to  a  court  of  equity  for  a 
receiver  to  wind  up  its  affairs.  A  creditor  in  a  proper  case  may 
come  into  court  with  such  application,  but  the  insolvent  debtor 
cannot.1  A  corporation  cannot  apply  in  its  corporate  capacity 
and  name  to  be  put  into  the  custody  of  a  receiver.2 

II.  Selection  of  Receivers. 

480.  In  the  appointment  the  court  is  not  necessarily  con- 
trolled by  the  expressed  wish  of  the  parties,  although  the  mort- 
gagee and  mortgagor  both  concur  in  asking  for  the  appointment 
of  the  same  person.  If  such  person  be  one  under  whose  charge 
the  resources  of  the  road  have  been  exhausted  and  the  necessity 
for  a  receiver  brought  about,  the  court  will  probably  refuse  to 
make  the  appointment.  The  receiver  is  not  the  servant  of  the 
bondholders,  but  of  the  court,  which  must  regard  the  interests  of 
other  creditors  of  the  insolvent  corporation.3  The  court  should, 
at  any  rate,  be  satisfied  of  the  fidelity  and  ability  of  the  person  to 
whom  the  property  is  intrusted  during  the  pendency  of  the  suit ; 
and  although  it  is  often  proper  and  desirable  that  officers  of  the 
corporation  to  whom  no  fault  is  imputed  should  be  continued  in 
the  management  of  it  as  receivers,4  when  there  has  been  mis- 
management, the  control  of  the  road  should  not  be  given  to  those 
whose  administration  of  its  affairs  had  ended  in  bankruptcy.5  It 
has  been  declared,  moreover,  that  an  officer  of  a  corporation  under 
whose  management  it  has  become  insolvent  is  not  a  proper  per- 
son to  be  appointed  a  receiver.  A  person  who  cannot,  with  the 
aid  of  others,  manage  a  business  successfully,  is  as  a  general  rule 
regarded  as  unfit  to  wind  it  up  alone.6 

Where  a  receiver  has  been  put  in  possession  of  a  road,  under  an 
agreement  between  the  parties  in  interest  in  a  foreclosure  suit 
that  the  complainants,  upon  giving  security  in  the  sum  of  $350,- 
000,  should  have  possession  of  the  road  and  should  name  the  re- 
ceiver, the  other  parties  are  placed  in  a  somewhat  different  atti- 
tude towards  that  officer  from  what  they  would  be  in  if  he  were 

1  Hugh  v.  McRae,  Chase's  Dec.  466.  5  Williamson  v.  New  Albany,  &c.  R.  R. 

2  Kimball  v.  Goodburn,  32  Mich.  10.        Co.  1  Biss.  198. 

8  Richards  v.  Chesapeake  &  Ohio  R.  R.         e  McCullough  v.  Merchants'    Loan    & 

Co.  1  Hughes,  28.  Trust  Co.  29  N.  J.  Eq.  217;  Freeholders 

4  Meyer  v.  Johnston,  53  Ala.  237.  of   Middlesex  County  v.  State  Bank  of 

New  Brunswick,  28  N.  J.  Eq.  166. 
458 


SELECTION   OF   RECEIVERS.  [§  481. 

appointed  by  the  coui't  in  the  ordinary  way  ;  for  it  does  not  lie 
with  them  to  object  to  the  person  of  the  receiver,  though  he  be 
a  complainant  in  the  suit,  unless  he  commits  some  overt  act  of 
unfaithfulness  to  his  trust,  which  can  be  specified  and  proved. 
They  cannot  go  into  his  previous  transactions  in  the  suit,  in 
order  to  show  that  he  had  heretofore  done  acts  which  exposed 
him  to  personal  animadversion.1 

481.  It  is  not  unusual  for  parties  representing  different  in- 
terests to  agree  upon  the  appointment  of  two  or  more  re- 
ceivers, each  of  whom  is  expected  to  represent  and  look  after  the 
interests  of  one  of  the  parties ;  and  the  courts  have  usually  ap- 
pointed the  receivers  so  agreed  upon.  So  long  as  harmony  pre- 
vails between  receivers  so  appointed,  there  may  be  no  difficulty 
experienced  in  operating  the  road  under  such  management,  ex- 
cepting the  additional  expense  of  two  or  more  receivers  where 
only  one  is  required.  But  it  must  be  observed  that  this  practice 
is  of  doubtful  utility.  Dissensions  are  apt  to  arise  between  the 
representatives  of  discordant  or  hostile  interests,  and  then  the 
practicable  management  of  the  road  by  them  becomes  impossible. 
In  a  case  where  this  had  been  the  result  of  appointing  such  re- 
ceivers,2 Mr.  Justice  Miller,  in  removing  them  to  make  way  for 
one  receiver  who  should  represent  the  court  and  be  strictly  neutral 
in  both  feeling  and  conduct,  said,  "  I  have  only  one  word  to  add  : 
In  every  view  a  receiver  is  strictly  and  solely  the  officer  of  the 
court,  if,  by  reason  of  the  inability  or  neglect  of  the  officers  of  the 
corporation  to  conduct  its  business  as  it  ought  to  be  done,  the 
conduct  of  that  business  is  taken  charge  of  by  the  court,  and  car- 
ried on  by  its  agent.  It  is  the  duty  of  that  agent  to  so  conduct 
this  business  as  that  the  lawful  rights  and  legal  interest  of  all 
persons  shall  be  protected  as  far  as  possible  with  equal  and  exact 
justice.  This  is  much  more  likely  to  be  done  by  a  receiver  who 
has  no  interest  in  the  capital  stock  of  the  road  ;  none  in  its  debts, 
and  no  obligations  to  those  who  have;  such  a  person,  acting  un- 
der the  control  of  the  court,  seeking  it,s  advice,  as  he  would  be  in- 
clined to  do,  on  all  questions  of  doubtful  duty,  and  bound  in  suffi- 
cient surety  for  the  faithful  performance  of  his  duty,  is,  in  my 
opinion,  the  proper  one  for  such  an  office." 

1  Cowdrej  v.  Railroad  Co.  I  Woods,  881.     Circuit  Court  DiBt.  of  Kansas,  r_>  Chicago 

2  Meier  '•.  Kansac  Pacific  By.  Co.  U.  S.     Legal  News,  41,  for  Oct.  *J(i,  1878. 

I.V.I 


§§  482,  483.]        THE   APPOINTMENT   AND   JURISDICTION   OF   RECEIVERS. 

Generally  it  may  be  said  that  the  existence  of  two  receivers 
representing  opposing  interests  is  unnecessary  and  embarrassing, 
even  if  they  are  on  amicable  terms,  and  have  but  a  single  place  of 
business.  But  their  different  interests  are  almost  certain  to  ren- 
der them  antagonistic,  and  in  that  event  a  successful  operation  of 
the  road  is  rendered  impossible.  As  remarked  by  Mr.  Justice 
Miller  in  the  case  under  consideration,  while  it  may  be  true  that  a 
large  personal  interest  may  stimulate  the  activity  and  direct  the 
vigilance ;  whenever  occasion  offers  that  vigilance  will  be  directed 
mostly  to  advancing  personal  interests,  and  that  activity  to  secur- 
ing personal  advantages. 

482.  The  appointment  of  a  receiver  once  made  cannot  be 
assailed  in  a  collateral  proceeding  where  it  appears  that  the 
court  has  jurisdiction  of  both  the  subject  matter  and  of  the  neces- 
sary parties.  However  erroneous  the  order  of  appointment  may 
have  been  it  cannot  be  treated  as  void,  but  at  the  most  only  as 
voidable  in  a  direct  proceeding  for  that  purpose.1  The  same  ob- 
servations apply  equally  to  an  order  granting  an  injunction  against 
the  prosecution  of  a  suit  or  judgment  against  a  receiver.2 

Where  the  fact  of  the  appointment  of  a  receiver  is  put  in  issue 
by  the  pleadings,  a  copy  duly  authenticated  of  the  order  appoint- 
ing him  is  admissible  evidence  of  the  appointment.3 

III.    Jurisdiction  of  Receivers. 

483.  Whether  a  receiver's  authority  is  limited  to  the  juris- 
diction of  the  court  appointing  him.  —  The  authority  of  a  re- 
ceiver cannot  ordinarily  extend  beyond  the  limits  of  the  territory 
within  which  the  court  making  the  appointment  has  jurisdiction, 
whether  this  be  a  state,  county,  or  other  local  district.  If  the 
court  making  the  appointment  has  jurisdiction  throughout  a  state, 
the  receiver  has  authority  to  take  possession  of  property  embraced 
in  the  receivership  anywhere  in  the  state,  but  he  has  no  authority 
beyond  that  state,  except  so  far  as  he  is  allowed  to  act  in  other 
states  through  the  comity  of  other  governments.  A  receiver  ap- 
pointed by  a  court  having  jurisdiction  of  a  limited  judicial  district 
within  a  state  has  no  authority  to  take  possession  of  property  in 
another  judicial  district.4     The  inability  of  a  receiver  to  exercise 

1  Richards  v.  People,  81  111.  551.  8  Allen  v.  Cent.  R.  R.  Co.  42  Iowa,  683. 

2  Richards  v.  People,  supra.  i  Florida  v.  Jacksonville,  Pensacola  & 

460  Mobile  R.  R.  Co.  15  Fla.  201. 


JURISDICTION   OF   RECEIVERS.  [§  484. 

any  extra-territorial  power  has  been  asserted  by  some  courts  with 
great  positiveness  ; 1  and  sometimes  courts  seem  to  have  unquali- 
fiedly refused  to  recognize  a  foreign  receiver,  and  allow  him  to 
maintain  actions,  on  any  ground  whatever.2  On  the  other  hand, 
the  fullest  authority  has  been  accorded  to  foreign  receivers  to 
bring  suits  with  reference  to  the  property  they  were  appointed  to 
take  charge  of.3  When  the  title  of  the  receiver  is  not  merely  one 
derived  from  his  appointment  as  such  by  a  foreign  court,  but  he 
has  himself  acquired  a  title  personal  to  himself  by  reducing  the 
property  to  possession,4  or  by  an  assignment  of  the  property  from 
the  debtor,5  his  right  to  pursue  the  property  in  a  foreign  jurisdic- 
tion may  be  regarded  as  certain.  He  has  in  such  case  a  right  of 
action  in  his  individual  capacity. 

The  generally  recognized  doctrine,  however,  is  that  a  receiver 
appointed  in  one  state  has  no  power  to  institute  proceedings  in 
the  courts  of  another  state,  except  by  comity  and  inter-state  and 
inter-national  courtesy ;  but  upon  this  principle  a  receiver  is 
generally  allowed  to  sue  in  foreign  courts  unless  the  claim  he  is 
seeking  to  enforce  comes  in  conflict  with  creditors  in  that  state, 
claiming  under  attachment  or  other  lien.6  As  against  a  foreign 
corporation  and  a  receiver  appointed  in  another  state,  courts  some- 
times protect  creditors  in  their  own  states  by  sustaining  attach- 
ments of  property  actually  within  the  state  where  suit  is  brought ; 
and  if  in  such  case  a  receiver  be  subsequently  appointed  in  that 
state,  he  takes  the  property  subject  to  any  lien  that  may  have  been 
acquired  by  the  attaching  creditor.7 

484.  It  is  a  rule  of  law  in  all  cases  of  conflict  of  jurisdic- 
tion that  the  court  which  first  takes  cognizance  of  the  contro- 
versy is  entitled  to  retain  jurisdiction  to  the  end  of  the  litigation, 

1  Booth  v.  Clark,  17  How.  322.  bian  Ins.  Co.  14  Allen  (Mass.),  353 ;  Hunt 

2  Farmers' &  Merchants'  Insurance  Co.     v.  Columbian  Ins.   Co.  55  Me.  290,298; 
v.  Needles,  52  Mo.  17.  Cagill   v.   AVoolbridge    (Tenn.),    4  C.   L. 

8  Paradise   v.   Farmers'  &    Mercbants'  J.  6. 
Bank  of  Memphis,  5  La.  Ann.  710;  Mc-         7  Dunlop  v.  Patcrson  Fire  Ins.  Co.  12 

Alpin  v.  Jones,  10  La.  Ann.  552.  Hun  (N.  Y.),  G27  ;  Taylor  v.  Columbian 

*  Cagill  v.  Woolbridge  (Tenn.),  4  Cent.  Ins.  Co.   14  Allen  (Ma«.),  353.     Sec  Os- 

L.  J.  6.  good  v.  Maguirc,  61  N.  Y.  524,  respecting 

■'  I  rraydon  '■.  Church,  7  Mich.  30,  51.  the  situs  of  property  in  the  form  of  promis- 

0  Qoyt   o.   Thompson,    ~>   N.   Y.  320;  gory  notes  in  the  hands  of  a  receiver.    The 

WHlitta  '•.  Waite,  2.">  \.  V.  577;  Graydon  case  is  in  conflict  with  the  Massachusetts 

v.  Church,  7  Mich.  86  j  Taylor  v.  Colum-  case  on  this  point. 

401 


§  485.]       THE   APPOINTMENT    AND   JURISDICTION    OF   RECEIVERS. 

and  incidentally  to  take  possession  of  the  subject  matter  of  the 
dispute  through  a  receiver,  to  the  exclusion  of  all  interference  from 
other  courts  of  coordinate  jurisdiction.  As  remarked  by  Judge 
Blodgett,  in  a  case  before  the  Circuit  Court  of  the  United  States 
for  Northern  Illinois,1  "  The  proper  application  of  this  rule  does 
not  require  that  the  court  which  first  takes  jurisdiction  of  the  case 
shall  also  first  take,  by  its  officers,  possession  of  the  thing  in  con- 
troversy, if  tangible  and  susceptible  of  seizure,  for  such  a  rule 
would  only  lead  to  unseemly  haste  on  the  part  of  officers  to  get 
the  manual  possession  of  the  property ;  and  while  the  court  first 
appealed  to  was  investigating  the  rights  of  the  respective  parties, 
another  court,  acting  with  more  haste,  might,  by  a  seizure  of  the 
property,  make  the  first  suit  wholly  unavailing.  To  avoid  such  a 
result,  the  broad  rule  is  laid  down  that  the  court  first  invoked  will 
not  be  interfered  with  by  another  court  while  the  jurisdiction  is 
retained."  Thus,  if  after  the  filing  of  a  bill  against  a  railroad 
company  in  the  Circuit  Court  of  the  United  States  in  which  the 
appointment  of  a  receiver  is  asked  for,  and  before  such  appoint- 
ment is  made  a  suit  be  commenced  in  a  state  court  for  the  ap- 
pointment of  a  receiver  of  the  same  property,  the  state  court, 
although  it  may  take  possession  of  the  property  through  its  re- 
ceiver, cannot  supersede  the  jurisdiction  of  the  Circuit  Court ;  but 
the  latter  court  will  proceed  in  due  course  to  appoint  a  receiver, 
if  occasion  for  such  action  be  shown,  and  will  assert  its  jurisdic- 
tion. The  adding  of  a  new  party  and  raising  a  new  question  as 
to  him  is  not  enough  to  give  jurisdiction  to  another  court.2 

485.  Where  the  conflict  of  jurisdiction  does  not  relate  to 
the  cause,  but  to  the  possession  of  the  subject  matter,  prior- 
ity of  possession  may  be  the  test  of  the  right  to  retain  possession.3 
The  question  whether  an  actual  seizure  of  the  property  is  neces- 
sary to  the  jurisdiction  of  the  court  in  a  case  where  the  possession 

i  Union  Trust  Co.  v.  Rockford,  Rock  3  Mallett  v.  Dexter,  1  Curtis,  178;  Wis- 
Island  &  St.  Louis  R.  R.  Co.  6  Biss.  197  ;  wall  v.  Sampson,  14  How.  52  ;  Chittenden 
Alabama  &  Chattanooga  R.  R.  Co.  v.  v.  Brewster,  2  Wall.  191  ;  Buck  v.  Col- 
Jones,  U.  S.  C.  C.  7  N.  B.  Reg.  145  ;  Bill  bath,  3  Wall.  334 ;  Memphis  City  v.  Dean, 
v.  New  Albany,  &c.  Ry.  Co.  2  Biss.  390;  8  Wall.  64;  Watson  v.  Jones,  13  Wall. 
Keep  v.  Mich.  Lake  Shore  R.  R.  Co.  6  Chi-  679  ;  Bill  v.  New  Albany,  &c.  Ry.  Co.  2 
cago  L.  N.  101  ;  Sedgwick  v.  Mench,  6  Biss.  390;  Parsons  v.  Lyman,  5  Blatchf. 
Blatchf.  156.  170. 

2  Memphis  City  v.  Dean,  8  Wall.  64. 
462 


JURISDICTION   OF   RECEIVERS.  [§  485. 

of  the  property  is  necessary  to  the  relief  sought,  or  whether  the 
commencement  of  the  action  and  service  of  process,  or  the  com- 
mencement of  the  action  by  the  filing  of  the  bill,  is  sufficient  to  give 
the  court  jurisdiction,  to  the  exclusion  of  all  other  courts,  was  dis- 
cussed in  the  case  of  Wilmer  v.  Atlanta  and  Richmond  Air  Line 
Railway  Company,1  in  the  Circuit  Court  of  the  United  States  for 
the  Northern  District  of  Georgia.  The  bill  in  that  case  was  filed 
the  thirtieth  day  of  October,  1874,  for  a  foreclosure  of  a  mortgage, 
and  a  copy  and  notice  of  motion  for  injunction  and  receiver  were 
served  on  the  railroad  company  the  next  day.  On  the  ninth  of  No- 
vember following  the  company  was  enjoined  from  yielding  posses- 
sion of  the  property  to  any  one  except  a  receiver  appointed  by  the 
court  in  this  case.  A  creditor  of  the  company  having  recovered 
judgment  levied  his  execution  upon  the  road,  and  sold  it  in  different 
parcels,  and  the  purchaser  was  put  in  possession  by  the  sheriff  on 
the  same  ninth  day  of  November.  On  the  next  day  the  company, 
by  its  managing  director,  filed  a  bill  in  the  Superior  Court  of 
Fulton  County,  in  the  State  of  Georgia,  to  prevent  the  judgment 
creditor  and  the  purchaser  from  taking  possession  of  the  road.  On 
November  twentieth,  the  purchaser  filed  a  cross-bill  in  the  same 
court,  asking  for  the  appointment  of  a  receiver ;  and  a  receiver 
was  the  next  day  appointed,  who,  on  the  twenty-sixth  of  the  same 
month,  took  possession.  The  Circuit  Court,  on  the  nineteenth  of 
December  following,  appointed  a  receiver  of  the  entire  property 
covered  by  the  mortgage,  but  the  receiver  was  unable  to  get  pos- 
session of  that  part  of  the  trust  property  lying  in  Georgia,  and  on 
the  twenty-fourth  of  May,  1875,  he  applied  to  the  court  for  a  writ 
of  assistance  to  enable  him  to  get  possession  of  the  property  in 
Georgia.  Judge  Woods,  in  appointing  the  receiver  of  the  Circuit 
Court,  was  of  opinion  that  the  filing  of  the  bill  in  that  court  and 
the  service  of  process  excluded  the  jurisdiction  of  all  other  courts 
to  take  possession  of  and  administer  the  property  or  any  part  of 
it.  But  Mr.  Justice  Bradley,  before  whom  the  application  for  the 
writ  of  assistance  was  heard,  differed  from  Judge  Woods  as  to  the 
jurisdiction  and  powers  of  the  court,  saying :  "  It  is  too  well  set- 
tled to  admit  of  controversy  that  where  two  courts  have  concur- 
rent jurisdiction  of  a  subject  of  controversy,  the  court  which  first 
assumes  jurisdiction  lias  it  exclusive  of  the  other.  But  where  the 
objects  of  the  suits  are  different  this  rule  does  not  apply,  although 

1  2  Woods,  409. 

4G3 


§  485.]       THE    APPOINTMENT    AND   JURISDICTION   OF   RECEIVERS. 

the  thing  about  or  in  reference  to  which  the  litigation  is  had  is  the 
same  in  both  cases.  Thus,  an  action  of  debt  on  a  bond,  an  action 
of  ejectment  on  the  mortgage  given  to  secure  it,  and  a  bill  in 
equity  to  foreclose  the  equity  of  redemption,  may  be  pending  at 
the  same  time,  unless  prohibited  by  some  statutory  regulation. 
The  land  mortgaged  may  be  seized  in  execution  by  the  sheriff  in 
an  action  at  law,  even  while  the  ejectment  or  the  bill  to  foreclose 
is  pending.  A  bill  to  foreclose  is  a  personal  proceeding,  although 
it  has  reference  to  a  specific  thing.  Its  object  is  to  put  an  end  to 
an  existing  equity,  and  to  procure  a  sale  of  the  mortgaged  prem- 
ises. Possession  may  be  taken  in  the  course  of  the  proceeding, 
but  until  it  is  taken,  can  it  be  said  that  the  property  is  sacred 
from  the  touch  of  other  persons  or  courts  ?  .  .  .  .  The  contro- 
versy not  being  the  same,  nor  the  parties  the  same,  there  is  no 
conflict  of  jurisdiction  as  to  the  question  or  cause.  But,  inasmuch 
as  both  controversies  have  ultimate  respect  to  the  possession  of  the 
railroad  of  the  Atlanta  and  Richmond  Air  Line  Railway  Company, 
there  has  arisen  a  conflict  of  jurisdiction  as  to  the  thing  or  subject 
matter.  It  is  important  to  know,  therefore,  whether  this  court 
had  jurisdiction  over  the  subject  matter,  namely,  the  railroad, 
when  taken  possession  of  by  the  receiver  of  the  Fulton  County 
Court,  so  as  to  make  that  taking  an  invasion  of  the  jurisdiction 
and  powers  of  this  court.  If  it  had,  it  will  enforce  that  jurisdic- 
tion, and  assume  the  actual  possession  to  which  it  gives  the  right. 
If  it  had  not,  then  it  will  not  interfere  with  the  actual  possession 
of  the  receiver  of  that  court,  though  the  rights  represented  by  the 
litigants  in  this  court  be  superior  to  those  of  both  litigants  in  the 
state  court,  as  those  rights  can  be  asserted  when  the  possession  of 
the  state  court  has  ceased.  The  reason  that  it  will  not  interfere 
in  such  case  is,  that  interference  might  create  a  collision  between 
the  two  courts,  which  would  be  unseemly,  and  contrary  to  the 
comity  which  should  exist  between  them.  The  two  courts  are 
coordinate  in  jurisdiction,  neither  being  superior  to  the  other,  and 
both  being  charged  in  the  respective  cases  before  them  with  the 
due  administration  of  the  laws  of  the  State  of  Georgia. 

"  The  test,  I  think,  is  this :  Not  which  action  was  first  com- 
menced, nor  which  cause  of  action  has  priority  or  superiority,  but 
which  court  first  acquired  jurisdiction  over  the  property.  If  the 
Fulton  County  Court  had  the  power  to  take  possession  when  it 
did  so,  and  did  not  invade  the  possession  or  jurisdiction  of  this 
464 


JURISDICTION   OF   RECEIVERS.  [§  486. 

court,  its  possession  will  not  be  interfered  with  by  this  court ;  the 
parties  must  either  go  to  that  court  and  pray  for  the  removal  of 
its  hand,  or,  having  procured  an  adjudication  of  their  rights  in  this 
court,  must  wait  until  the  action  of  that  court  has  been  brought 
to  a  close,  and  judicial  possession  has  ceased.  Service  of  process 
gives  jurisdiction  over  the  person.  Seizure  gives  jurisdiction  over 
the  property  ;  and  until  it  is  seized,  no  matter  when  the  suit  was 
commenced,  the  court  does  not  have  jurisdiction.  The  alleged 
collusion  and  fraud  of  the  parties  cannot  alter  the  case.  It  is  a 
question  between  the  two  courts  ;  and  we  must  respect  the  posses- 
sion and  jurisdiction  of  the  sister  court.  We  cannot  take  the 
property  out  of  its  hands,  unless  it  has  first  wrongfully  taken  it 
out  of  our  hands.  This,  as  we  have  shown,  has  not  been  done. 
The  application  for  a  writ  of  assistance  and  for  an  attachment 
must  be  denied."  * 

486.  Doctrine  that  the  mere  filing  of  the  bill  gives  juris- 
diction of  the  thing  in  controversy.  —  The  Supreme  Court  of 
Georgia,  recognizing  a  difference  of  opinion  upon  the  question 
whether  the  mere  filing  of  a  bill,  in  a  case  where  the  only  recov- 
ery can  be  out  of  the  property,  gives  such  jurisdiction  of  the  res 
as  to  prevent  another  court  from  appointing  a  receiver,  expressed 
the  opinion  that  it  does.2  The  decision  of  the  case,  however, 
was  made  in  view  of  facts  showing  a  case  of  collusion  in  the  ap- 
pointment of  a  receiver  in  a  court  of  the  state.  In  a  suit  against 
the  Cherokee  Railroad  Company,  begun  in  the  Circuit  Court  in 
1872,  a  receiver  was  appointed,  but  afterwards,  by  consent,  this 
appointment  was  revoked  ;  but  the  case  otherwise  remained  the 
same,  and  after  a  decree  in  favor  of  the  plaintiff,  the  case  was  car- 
ried to  the  Supreme  Court  of  the  United  States.  While  it  was 
there  pending,  in  September,  1876,  certain  parties,  some  of  whom 
were  parties  defendant  in  the  former  suit,  filed  a  bill  in  a  court  of 
the  state,  praying,  among  other  things,  for  the  appointment  of  a 
receiver.  On  ( )ctober  second  the  chancellor  passed  an  order  for  a 
hearing  on  the  twenty-third  day  of  the  same  month,  and  for  per- 
fecting service  ten  days  before  that  time.  Afterwards,  by  con- 
sent, the  hearing  was  set  for   the   tenth  day  of  the  month,  when 

1  Qucere  a-  to  correctness  of  this  opinion,     ion  of  Mr.  Justice  Bradley, '-'  Woods,  409, 
a  May  r.  Prin  tup,  August  T.  1877,5  Ho-     suited  in  the  preceding  section,  to  the  con- 
porter,  392.    The  court  refer  to  the  opin-    trary,  and  dissent  from  it  on  this  point. 

ao  465 


§  487.]       THE   APPOINTMENT   AND   JURISDICTION    OF   RECEIVERS. 

a  receiver  was  appointed.  Meanwhile,  pending  the  former  case 
in  the  Supreme  Court,  the  appointment  of  a  receiver  was  applied 
for  in  the  Circuit  Court,  and  a  hearing  was  had  and  a  receiver 
was  appointed  on  the  twentieth  of  October.  This  receiver  found 
the  receiver  appointed  by  the  state  court  in  possession  ;  where- 
upon, under  the  direction  of  the  Circuit  Court,  he  applied  to  the 
state  court  for  the  possession  of  the  property.  The  chancellor 
granted  an  [order  to  that  effect,  which  was  affirmed  by  the  Su- 
preme Court  of  the  state,  upon  the  ground  that  the  chancellor 
made  the  appointment  inadvertently,  and  without  knowledge  of 
the  facts  of  the  proceedings  in  the  federal  court,  and  under  cir- 
cumstances indicating  a  collusion  of  parties  in  obtaining  the  ap- 
pointment. 

487.  "When  a  receiver  has  once  obtained  actual  possession 
of  the  property  committed  to  his  charge,  he  cannot  be  inter- 
fered with  by  a  receiver  subsequently  appointed  in  another  court.1 
When  a  question  is  pending  in  one  court  of  competent  jurisdic- 
tion, it  cannot  be  raised  and  agitated  in  another  court ;  much  less 
can  a  court  assume  to  take  possession  of  and  administer  property 
which  is  in  possession  of  another  court,  and  in  course  of  adminis- 
tration by  it.2  Upon  the  institution  of  proceedings  in  bankruptcy 
in  a  United  States  court  against  an  insolvent  railroad  company, 
already  in  the  hands  of  a  receiver  appointed  under  proceedings  in 
a  state  court,  his  possession  will  not  be  interfered  with,  except 
for  some  cause  for  which  his  title  might  be  impeached  under  the 
Bankrupt  Act.3  A  court  of  the  United  States  will  not  entertain  a 
bill  for  an  account  against  the  receiver  of  a  corporation  appointed 
by  a  state  court,  but  will  leave  the  petitioner  to  pursue  his  remedy 
in  the  court  from  which  the  receiver  derived  his  appointment.4 
Neither  will  the  court  appoint  a  receiver  of  property  which  is  in 
the  possession  of  a  person  not  a  party  to  the  suit.  Such  person 
may  be  made  a  party,  and  the  objection  is  then  removed.5 

i  O'Mahoney  v.  Belmont,  37  N.  Y.  Su-         4  Conklin  v.  Butler,  4  Biss.  22. 
perior  Ct.  380 ;  Wilmer  v.  Atlanta  &  Rich-         5  Searles  v.  Jacksonville,  Pensacola   & 
mond  Air  Line  Ry.  Co.  2  Woods,  409."        Mobile  R.  R.  Co.  2  Woods,  621  ;  Florida 

2  Young  v.  Montgomery  &  Eufaula  R.     v .  Jacksonville,  Pensacola  &  Mobile  R.  R. 
R.  Co.  2  Woods,  606.  Co.  15  Fla.  201,  280. 

8  Alden  v.  Boston,  Hartford  &  Erie  R. 
R.  Co.  5  N.  B.  R.  230. 
466 


JURISDICTION   OF  RECEIVERS.  [§  488. 

48S.  When,  however,  a  line  of  railway  extending  through 
several  states  belongs  to  the  same  corporate  body  which  the 
several  states,  by  concurrent  legislation,  have  united  in  creating, 
a  court  having  jurisdiction  of  the  corporation  has  jurisdiction  of 
its  property,  both  within  the  state  and  beyond  its  limits,  and  may 
appoint  a  receiver  of  the  whole.  The  Atlanta  and  Richmond 
Air  Line  Railway  Company,  extending  from  Atlanta.,  in  Georgia, 
through  South  Carolina,  to  Charlotte,  in  North  Carolina,  having 
mortgaged  its  entire  road  and  property,  and  made  default  in  the 
payment  of  interest,  executions  were  issued  against  the  company, 
and  a  receiver  was  appointed  in  each  of  the  three  states,  although 
the  same  person  was  appointed  in  the  States  of  North  and  South 
Carolina.  There  were,  therefore,  three  distinct  and  independent 
courts  claiming  possession  of  different  portions  of  the  road  and 
other  property  of  the  company,  and  it  was  in  the  actual  possession 
of  two  different  receivers,  living  in  different  states  and  account- 
able to  different  tribunals.  In  this  position  of  the  affairs  of  the 
company  the  bondholders  secured  by  the  mortgage  applied  to  the 
Circuit  Court  of  the  United  States  for  the  Northern  District  of 
Georgia  to  appoint  a  receiver  for  the  entire  line  of  the  road.1 
The  bill  averred  that  this  railroad  property  was  one  inseparable 
and  indivisible  piece  of  property ;  that  it  was  a  portion  of  a  great 
through  route,  and  derived  its  chief  value  and  business  from  that 
fact.  "  It  is  obvious,"  said  the  Circuit  Court  judge,  Mr.  Woods, 
in  appointing  the  receiver,  "  that  it  would  be  a  most  unfortunate 
case  that  such  a  property  should  be  held  by  two  different  receivers, 
accountable  to  three  different  courts.  In  fact,  when  we  consider 
that  a  large  part  of  the  property  of  the  company  consists  of  rolling 
stock,  which  must  necessarily  pass  from  one  end  of  the  road  to  the. 
other,  and  which  must  be  used  on  the  three  divisions  into  which 
the  road  is  divided  by  its  administration  in  three  different  courts, 
if  appears  to  be  well-nigh  impossible  to  administer  the  affairs  of 
the  road  and  render  accurate  and  satisfactory  accounts.  It  is  evi- 
dent that  such  a  divided  control  must  result  in  crippling  the  oper- 
ations of  the  road,  destroying  its  business  and  reducing  its  receipts, 
and  placing  in  jeopardy  the  security  of  its  creditors.  This  unfor- 
tunate condition  of  affairs,  resulting  from  the  action  of  three  inde- 
pendent courts,  would  of  itself  be,  as  it  appears  to  us,  sufficient 
ground  for  the  appointment  of  a  receiver  for  the  entire  property 

1  Wilrner  v.  Atlanta  &  Richmond  Air  Line  lly.  Co.  2  Woods,  409. 

407 


§  489.]       THE   APPOINTMENT   AND   JURISDICTION    OF   RECEIVERS. 

by  this  court,  if  the  power  and  jurisdiction  of  this  court  to  do  so 
is  clear." 

The  property  of  the  company  in  such  case  is  one  entire  and  in- 
divisible thing.  If  the  receiver  is  compelled  to  ask  the  assistance 
of  courts  of  other  jurisdictions  to  aid  him  in  obtaining  possession 
of  the  property,  those  courts  would  feel  constrained,  as  a  matter 
of  comity,  to  afford  all  necessary  aid  to  put  him  in  possession.1  If 
the  suits  are  commenced  in  courts  of  coordinate  jurisdiction,  and 
receivers  are  appointed  by  both,  it  would  seem  that  the  court 
which  first  seizes  the  property  acquires  jurisdiction  over  it,  to  the 
exclusion  of  the  other,  without  reference  to  the  time  when  the 
suits  were  commenced.2 

489.  Two  or  more  states  may,  by  concurrent  legislation, 
unite  in  creating  the  same  corporate  body,  so  that  instead  of 
two  or  more  separate  bodies  in  the  different  states,  there  is  one 
consolidated  body  having  the  same  rights  and  functions  in  the 
one  state  that  it  has  in  the  other.3  A  court  having  jurisdiction 
over  a  corporate  body  of  this  kind,  such  for  instance  as  a  consoli- 
dated line  of  railroad,  may  exercise  jurisdiction  over  its  real  and 
personal  property  outside  of  the  limits  of  the  state  to  which  the 
jurisdiction  of  the  court  is  ordinarily  limited,  by  the  appointment 
of  a  receiver  to  take  possession  of  the  entire  property,  both  within 
and  without  the  state.  The  court  having  jurisdiction  of  the  cor- 
poration may,  through  that,  reach  its  property  situated  outside 
the  territorial  jurisdiction  of  the  court.  If  necessary,  it  might 
require  assignments  to  be  made  by  the  company  to  the  receiver.4 
If  other  persons  outside  the  territorial  jurisdiction  of  the  court 
have  seized  the  property  of  the  company,  so  that  the  court  cannot 
reach  it  by  controlling  the  company,  the  receiver  may  be  com- 
pelled to  ask  the  assistance  of  the  courts  of  that  jurisdiction  to 
aid  him  in  obtaining  possession  ;  but  the  courts  of  other  jurisdic- 
tions would  feel  constrained,  as  a  matter  of  comity,  to  afford  all 
necessary  aid  in  their  power  to  put  such  receiver  in  possession.5 

1  Wilmer  v.  Atlanta  &  Richmond  Air  Line  Ily.  Co.  supra;  and  see  Ellis  v] 
Line  Ry.  Co.  2  Woods,  409 ;  and  see  Ellis  Boston,  Hartford  &  Erie  R.  R.  Co.  107 
v.  Boston,  Hartford  &  Erie  R.  R.  Co.  107     Mass.  1. 

Mass.  1.  *  Northern  Indiana  R.  R.  Co.  v.  Michi- 

2  Wilmer  v.  Atlanta  &  Richmond  Air  gan  Cent.  R.  R.  Co.  15  How.  233,  243. 
Line  Ry.  Co.  supra.  5  "Wilmer  v.  Atlanta  &  Richmond  Air 

3  Wilmer  v.  Atlanta  &  Richmond  Air  Line  Ry.  Co.  2  Woods,  409. 

468 


JURISDICTION   OF   RECEIVERS.  [§§  490,  491. 

490.  A  receiver  appointed  by  a  court  having  jurisdiction 
of  the  cause  cannot  be  interfered  with  by  a  court  of  coordi- 
nate jurisdiction  under  proceedings  subsequently  commenced.1 
When  a,  junior  mortgagee  has  first  brought  a  suit  to  foreclose  his 
mortgage,  and  the  court  has  taken  possession  of  the  mortgaged 
property  by  a  receiver,  a  senior  mortgagee  cannot  gain  possession 
of  the  property  while  that  suit  is  pending  by  a  suit  subsequently 
begun  in  another  court.  He  can  only  interfere  with  such  posses- 
sion by  being  admitted  as  a  party  to  the  first  suit.  The  senior 
mortgagee  may  commence  a  suit  to  foreclose  his  mortgage  in  an- 
other court  having  jurisdiction,  but  no  matter  what  he  may  be 
able  to  show  as  to  the  incompetency,  unfitness,  or  dishonesty  of 
the  receiver  appointed  in  the  prior  suit  by  the  junior  mortgagee 
in  another  court,  he  can  neither  obtain  the  removal  of  that  re- 
ceiver or  the  appointment  of  another  except  by  going  into  that 
court  and  presenting  his  complaints  there. 

491.  By  the  comity  existing  between  the  courts  of  the 
different  states,  although  a  receiver  has  no  extra-territorial  ju- 
risdiction, his  appointment  and  title  are  recognized  in  other  states 
when  his  claims  do  not  come  in  conflict  with  those  of  citizens  of 
the  state  in  which  adverse  proceedings  arise.  Thus,  a  receiver 
having  been  appointed  in  Virginia  in  a  foreclosure  suit  against  the 
Atlantic,  Mississippi,  and  Ohio  Railroad  Company,  a  citizen  of 
that  state  soon  afterwards  attached  by  trustee  process,  in  a  court 
of  the  State  of  Pennsylvania,  certain  funds  and  credits  of  that 
company  in  the  hands  of  the  Pennsylvania  Railroad  Company. 
The  receiver  claimed  the  funds,  and  his  right  to  them  was  sus- 
tained ;  the  court  declaring  that  a  creditor  had  no  right,  after  the 
appointment  of  a  receiver  by  a  court  within  his  own  state,  bind- 
ing upon  him  there,  to  attempt  to  avoid  its  effect  by  escaping 
from  its  jurisdiction,  and  going  into  another  state  and  asking  the 
courts  there  to  infringe  the  comity  due  to  the  acts  of  the  courts 
of  his  own  state.  Instead  of  comity  this  would  be  unfriendli- 
ness, for  it  would  be  asking  the  courts  of  a  foreign  state  to  aid 
in  the  violation  of  the  law  of  the  plaintiff's  own  state.2 

A  citizen  of  the  State  of  .Massachusetts,  appointed  a  receiver 

1  Young  v.  Montgomery  &  Eufaula  R.     R.  Co.in  8npreme  Court  of  Pa.  Feb.  1878; 
B.Co.  'i  Woods,  606.  -r)  Weekly  Notes,  2G3 ;  5  Reporter,  661. 

2  B;i^sl)y  v.  Atlantic,  Misu.  &  Ohio  R. 

469 


§  492.]       THE   APPOINTMENT  AND   JURISDICTION    OF   RECEIVERS. 

of  an  Ohio  corporation  by  the  United  States  Circuit  Court  in  the 
latter  state,  may  maintain  an  action  in  that  court  for  the  recovery 
of  assets  of  such  corporation  wrongfully  withheld.1  A  receiver 
may  generally  sue  in  the  courts  of  another  state.  His  power  to 
do  so,  however,  arises  from  comity  merely,  unless  there  be  a  spec- 
ial statute  authorizing  such  a  suit ;  and  is  generally  kept  subordi- 
nate to  the  rights  of  local  creditors,  as  respects  property  within 
the  jurisdiction  where  such  a  suit  is  brought.2 

492.  When  property  has  once  vested  in  a  receiver  he  can 
take  it  into  another  state,  and  the  law  of  such  other  state  will 
not  divest  him  of  his  right  to  it.  If  it  be  attached  in  such  other 
state  as  the  property  of  the  corporation  of  whose  property  the 
receiver  has  been  put  in  charge,  the  courts  will  inquire  whether 
he  has  such  right  to  the  property  when  it  comes  into  the  state  as 
between  himself  and  the  citizens  of  the  state  ;  but  when  the  fact 
that  he  has  such  right  is  ascertained,  they  will  not  regard  it  as 
important  by  what  mode  the  right  was  acquired.  It  makes  no 
difference  whether  the  property  vested  in  the  receiver  under  the 
local  law  of  another  state  or  under  the  common  law.  Neither  is 
it  a  matter  of  any  importance  whether  the  title  to  the  property  in 
such  case  passes  to  the  receiver  or  remains  technically  with  the 
corporation,  so  long  as  the  property  is  taken  from  the  corporation 
and  placed  in  the  hands  of  the  receiver  under  the  direction  of  the 
court.3  If  such  property  be  already  in  the  state  when  the  receiver 
is  appointed,  and  it  be  attached  at  the  suit  of  a  citizen  before  the 
receiver  has  taken  possession  of  it,  then  the  appointment  of  the 
receiver  in  a  foreign  state  might  not  vest  the  property  in  him  as 
against  such  creditor.4 

In  a  proper  case  the  courts  will  protect  citizens  of  their  own 
state  against  the  claims  of  a  receiver  appointed  by  an  extra-terri- 
torial court,  because  they  are  not  bound  by  such  appointment, 
and  their  assistance  will  not  be  given  at  the  expense  of  injustice 
to  citizens  of  their  own  state,  to  enforce  an  extra-territorial  act 
resting  only  in  comity. 

1  Farlow  v.  Lea,  6  C.  L.  J.  195.  4  Taylor  v.  Columbian  Ins.  Co.  14  Al- 

2  Chandler?;.  Siddle,  3  Dill.  477.  len  (Mass.),  353  ;  Upton  v.  Hubbard,  28 
8  Pond    v.   Cooke,    Supreme   Court  of     Conn.  274  ;   Willitts  v.  Waite,  25  N.  Y. 

Conn.  6  Reporter,  516.  577. 

470 


CHAPTER  XVI. 


THE   RIGHTS   AND   LIABILITIES   OP   A   RECEIVER. 


I.  The  title  and  power  of  a  receiver  in  gen- 
eral, 493-498. 

II.  A  receiver  cannot  be  sued  without  leave 
of  the  court  appointing  him,  499-508. 

III.  A   receiver's  liability  to   suit  for  the 
neuligence  of  his  employees,  509-515. 

IV.  The  company  itself  is  not  liable  after 


the  receiver  has  assumed  control,'516- 
520. 

V.  Discharge  and  removal  of  receiver,  521- 
526. 

VI.  Compensation  and  account  of  receiver, 
527-530. 


I.  The  Title  and  Power  of  a  Receiver  in  General. 

493.  The  title  of  a  receiver  to  property  placed  in  his  charge 
relates  back  to  the  date  of  the  order  of  his  appointment.  — 
The  order  of  the  court,  either  impliedly  or  expressly,  takes  the 
title  from  the  defendant,  and  it  is  thenceforth  under  the  control 
of  the  court ;  and  whether  he  be  immediately  appointed  and  qual- 
ified to  act  or  not,  the  title  of  the  court  and  of  its  agent  and  offi- 
cer dates  from  that  moment.1  The  title  to  real  estate  vests  in 
the  receiver  by  conveyance  from  the  debtor,  which  the  court  may 
comj^el  him  to  make  ;  2  but  he  is  entitled  to  the  rents  and  profits 
from  the  date  of  the  order  appointing  him,  which  in  effect  removes 
the  defendant  or  other  person  from  the  possession  unless  he  holds 
under  a  title  paramount  to  that  under  which  the  appointment  was 
made.3 

The  right  to  the  custody  of  the  property  of  which  a  receiver  is 
appointed  vests  immediately  in  him  upon  the  filing  of  his  bond  ; 
and  he  may,  if  necessary,  by  order  of  court,  bring  a  suit  for  it  in 
his  own  name.     But  the  right  of  possession  extends  only  to  the 


i  Steele  v.  Sturgis,  5  Abb.  (N.  Y.)  Pr. 
■\vi\  Butter  v.  Fallis,  5  Sandf.  (N.  Y.) 
610;  Fairfield  p.  Weston,  2  Sim.  &  St. 
96;  Maynard  '••  Bond,  Supreme  Court  of 
Mo.  o  Beporter,  530.  Ami  sec  Metz  '■• 
Buffalo,  C<>rry  &  Pittgburg  B.  K.  ('o.  58 
N.  Y.  01  ;  Allen  v.  Central   B.   B.  Co.  42 


Iowa,  683.  Contra,  see  Farmers'  Bank  v. 
Beaston,  7G.  &  J.  (Md.)  421. 

2  Chautauqua  Bank  v.  Bieley,  19  N.  Y. 
369;  Scott  v.  Elmore,  10  Hun  (N.  Y.),  68. 

8  Ames  v.  Birkenhead  Ducks,  20  Beav. 
850;  Evelyn  v.  Lewis,  3  Hare,  172 ;  Lloyd 
v.  Mason,  2  M.  &  C.  487. 

471 


§  494.]  THE   RIGHTS   AND    LIABILITIES    OF   A   RECEIVER. 

property  which  is  the  subject  matter  of  the  mortgage.  It  does 
not  extend  to  money  in  the  hands  of  the  mortgagor  at  the  time 
the  appointment  is  made,  for  although  it  be  earnings  of  the  road 
the  mortgage  does  not  attach  to  it.1 

If,  however,  the  order  appointing  a  receiver  be  conditional  on 
his  giving  security,  it  would  seem  that  he  is  not  constituted  re- 
ceiver till  he  gives  security  ;  and  that  till  he  gives  such  security 
or  takes  actual  possession,  it  is  not  contempt  of  court  to  take 
chattels  comprised  in  the  security  in  execution.2  If  the  receiver 
really  takes  possession  before  the  goods  are  seized,  then,  although 
his  appointment  as  receiver  had  not  been  completed,  still,  as  pos- 
session is  taken  on  behalf  of  the  mortgagee,  it  would  seem  that  it 
would  be  effectual  against  any  interference  by  execution.3 

494.  A  receiver  takes  the  property  subject  to  any  legal  or 
equitable  liens  upon  it  at  the  time  of  his  appointment.4  Thus 
money  deposited  by  a  railroad  company  with  bankers  for  the  pay- 
ment of  a  dividend  is  regarded  as  specially  appropriated  for  that 
purpose,  and  as  giving  the  stockholders  an  equitable  lien  upon  it 
to  the  extent  they  are  respectively  entitled  to  share  in  it  ;  and  a 
receiver  appointed  before  the  whole  amount  deposited  has  been 
paid  out  takes  such  funds  subject  to  this  equity.  The  Erie  Rail- 
way Company  having  so  deposited  the  amount  of  a  dividend  pay- 
able October  first,  1873,  a  little  more  than  a  year  afterwards  with- 
drew a  balance  of  about  $5,000,  which  had  not  been  paid  out,  and 
this  sum  passed  into  the  hands  of  a  receiver  appointed  soon  after- 
wards. A  stockholder  who  had  been  absent  and  had  neglected  to 
draw  his  dividend  applied  to  the  court  by  petition  for  an  order 
directing  the  receiver  to  pay  him  the  amount  of  his  dividend,  and 
such  an  order  was  made  and  was  confirmed  by  the  Supreme 
Court  of  New  York  at  general  term.5 

The  appointment  of  a  receiver  does  not  enlarge  or  restrict  the 
powers  conferred  upon  the  corporation  by  its  charter.  The  re- 
ceiver takes   the  property  subject   to  the    same  limitations    that 

1  Noyes  v.  Rich,  52  Me.  115;  Rider  v.  3  Edwards  v.  Edwards,  supra,  per  Mel- 
Vrooman,  12  Hun  (N.  Y.),  299.  lish,  L.  J. 

2  Edwards  v.  Edwards,  L.  R.  2  Ch.  D.  *  Bell  v.  Shibley,  33  Barb.  (K  Y.)  610. 
291,  overruling  V.  C.  Malins,  that  the  ap-  As  to  rights  of  set-off  see  Berry  v.  Brett, 
pointment  takes  effect  from  the   date  of  6  Bosw.  (N.  Y.)  627. 

the  order;  S.  C.  L.  R.  1  Ch.  D.  454.  5  Le  Blanc  in  re,  4  Abb.  New  Cas.  (N. 


Y.)  221. 


472 


TITLE   AND    POWER   IN    GENERAL.  [§  495. 

affected  it  in  the  hands  of  the  company.  An  injunction  granted 
by  a  court  of  competent  jurisdiction  restraining  a  railroad  com- 
pany from  obstructing  certain  streets  is  binding  upon  a  receiver 
subsequently  appointed  by  a  court  of  the  United  States,  in  the 
same  manner  that  it  is  binding  upon  an  agent  of  the  company  or 
upon  a  subsequent  purchaser.1 

495.  Suits  by  receivers.  —  A  receiver  represents  the  creditors 
of  the  corporation  whose  property  and  effects  he  is  placed  in 
charge  of  by  a  court  of  equity,  so  that  in  a  suit  brought  by  the 
receiver  to  protect  the  property  of  the  company,  the  creditors  are 
neither  proper  nor  necessary  parties.2  While  in  bringing  an 
action  he  should  allege  his  appointment  by  a  court  of  competent 
jurisdiction  and  his  capacity  to  prosecute  the  action  in  his  official 
capacity,3  the  regularity  or  propriety  of  his  appointment  cannot 
be  called  in  question  in  such  suit,  but  only  in  a  direct  proceed- 
ing for  that  purpose.4 

In  general,  a  receiver  cannot  sue  without  express  authority 
from  the  court.5  Even  if  the  order  of  appointment  in  general 
terms  confers  the  power  to  sue,  it  is  usual  and  proper  for  a  re- 
ceiver before  instituting  a  suit  to  obtain  leave  of  court  to  do  so.6 

A  receiver  of  a  corporation  has  all  the  rights  of  action  and  the 
same  legal  remedies  against  third  persons  that  the  corporation 
itself  had.7  Suit  should  be  in  the  name  of  the  corporation,  in 
whom  the  right  of  action  was  before  his  appointment.8  If  the  de- 
fendant or  other  person  in  possession  of  the  property  refuses  to 
deliver  it  to  the  receiver,  before  attempting  to  take  possession  he 
should  obtain  an  express  order  of  court  directing  him  to  do  so. 
If  a  third  person  holds  the  property  under  a  claim  of  right,  the 
receiver  may  obtain  leave  to  bring  an  action  to  try  such  right,  or 
the  plaintiff  in  the  suit  in  which  the  receiver  is  appointed  may 
make  such  third  person  a  party  to  the  suit,  and  apply  to  have  the 
receivership  extended  over  the  property  in  dispute.9 

i  Safford  v.  People,  85  111.  558.  6  Screven  v.  Clark,  48  Ga.  41. 

-  Gray  v.  Davis,  1   Woods,  420.     Sec  «  High  on    Receivers,  §  208  j  Hayes  v. 

McNab  17.  JSoonan,  28  Wis.  43  i.  Brotzman,  6  Reporter,  493. 

»  Curtis  p.  McHhenny,  5  Jones   (N.  C),  '  High  on  Receivers,  §  816. 

Eq,  290.  8  Booth  v.  Clark,  17  How.831  ;  feager 

i  Vermont  &  Canada  R.  R.  Co.  v.  Ver-  v.   Wallace,  44   Pa.  St.  294;  Manlove   v. 

montOent.  R.  R.  Co.  46  Vt.792;  Palmer  Burger,  88  End.  211. 

v.  Clark,  4  Abb.  N.  C.  (N.  V.)  25 j  Case  ■  Parker  v.  Browning,  8  Paige  (N.  v.), 

v.  Marchand.  23  La.  Ann.  60.  388. 

-173 


§  496.]  THE   RIGHTS   AND   LIABILITIES    OF   A   RECEIVER. 

496.  The  relation  of  the  receiver  to  leases  of  the  property. 
Whether  a  receiver  can  refuse  to  operate  a  ^road  leased  to  the 
corporation  whose  property  has  been  put  under  his  control  is  a 
question  important  for  him  to  consider  when  the  leased  road  can 
be  operated  only  at  loss.  If  the  mortgages  under  which  he  has 
been  put  in  possession  of  the  road  are  older  than  the  lease,  the 
mortgagees  would  not  be  bound  by  it  unless  they  have  assented 
to  it,  and  it  would  seem  that  a  receiver  in  such  case  might  disre- 
gard the  lease.  But  where  on  an  application  by  motion  to  com- 
pel a  receiver  to  comply  with  the  terms  of  a  lease  to  the  corpora- 
tion in  his  charge,  he  set  up  his  appointment  and  denied  that  he 
was  then  operating  the  road  or  had  operated  it  under  the  lease, 
the  court  will  not  on  such  motion  try  and  settle  a  disputed  ques- 
tion of  law  and  fact.  The  rights  of  the  parties  should  be  settled 
in  an  action.  The  mortgage  bondholders,  whose  moneys  it  is 
sought  to  divert  to  the  payment  of  the  rent  of  the  leased  l-oad,  or 
their  trustees,  should  be  made  parties  to  such  a  suit.1 

A  lease  invalid  in  the  beginning  may  be  afterwards  ratified  by 
the  corporation  by  the  payment  of  rent  or  otherwise.  If,  how- 
ever, it  was  one  which  the  company  had  no  power  to  make,  it 
cannot  then  be  ratified.2 

A  receiver  of  the  Southern  Minnesota  Railroad  Company  ap- 
pointed in  a  foreclosure  suit  was  authorized  to  enter  into  a  con- 
tract with  a  bridge  company  for  the  payment  of  fixed  tolls  for  the 
use  of  the  bridge  for  a  series  of  years,  binding  the  company,  its 
assigns  or  successors,  or  the  purchasers  at  the  foreclosure  sale 
under  the  deed  of  trust.3 

Without  authority  conferred  by  statute  or  order  of  court  a  re- 
ceiver has  no  power  to  make  leases  other  than  parol. 

A  receiver  of  a  railroad  under  the  appointment  of  the  governor 
of  a  state  has  no  power  to  lease  the  road  so  as  to  vest  the  lessee 
with  an  interest  in  the  road  and  its  franchises  which  could  not  be 
divested  by  a  subsequent  act  of  the  legislature.4 

Such  is  the  authority  of  a  Court  of  Equity  over  corporations 
in  the  charge  of  receivers,  that  as  between  two  railroad  companies 

1  People  v.  Erie  Ry.  Co.  54  How.  (N.  3  La  Crosse  Railroad  Bridge  in  re, 
Y.)  Pr.  59.  2  Dill.  465. 

2  Ogdensburgh  &  Lake  Champlain  R.  *  McMinnville  &  Manchester  R.  R.  v. 
R.  Co.  v.  Vermont  &  Canada  R.  R.  Co.  4  Huggins,  59  Tenn.  177. 

Hun  (N.  Y.),  268. 

474 


TITLE   AND    POWER   IN    GENERAL.  [§  497. 

in  the  hands  of  receivers,  upon  the  application  of  either  receiver, 
a  contract  between  the  companies  for  the  use  of  part  of  one  road 
by  the  other  company,  and  for  the  use  of  terminal  facilities,  may 
be  modified  so  as  to  equitably  readjust  the  rates  agreed  upon  be- 
tween them.  If  the  application  shows  that  at  the  time  when  the 
contract  was  made  rents,  tolls,  equipments,  and  all  kinds  of  labor 
and  material  were  much  more  expensive  than  at  present,  and  that 
the  rate  established  by  the  contract  is  excessive  and  unjust,  the 
court  is  not  bound  to  recognize  the  obligation  of  the  contract,  but 
may  modify  it  if  it  can  be  done  with  due  regard  to  the  interest 
of  the  other  trust.  "  It  will  not  require  the  receiver  of  one  rail- 
road company  to  furnish  facilities  to  the  receiver  of  another  in 
the  operation  of  the  road  in  charge  of  the  latter,  to  the  detriment 
of  the  trust  in  the  hands  of  the  former  ;  but,  if  there  be  neces- 
sity for  so  doing,  it  will  not  hesitate  to  modify  the  terms  on 
which  the  facilities  are  furnished,  wholly  ignoring,  if  need  be,  the 
bargain  made  between  the  two  insolvent  companies,  always  tak- 
ing care,  however,  that  the  company  furnishing  the  facilities  re- 
ceives due  compensation  therefor."  1 

497.  Whether  a  receiver  may  disregard  a  statute  fixing 
traffic  rates.  —  While  the  constitutionality  of  a  state  statute  reg- 
ulating freight  and  passenger  tariffs  was  pending  before  the  Su- 
preme Court  of  the  United  States,  Judge  Dillon,  in  the  Circuit 
Court,  declined  to  order  the  receiver  to  disregard  the  law,  or  to 
conform  to  it  in  all  things.2  While  there  is  always  a  presump- 
tion in  favor  of  the  validity  of  an  act  of  the  legislature,  and 
that  the  receiver  would  be  justified  in  following  the  state  stat- 
ute in  all  instances  where  the  rates  fixed  by  it  are  reasonable 
and  fairly  compensatory  to  the  company,  yet,  the  judge  said  that 
the  receiver  might  exercise  a  fair  and  impartial  judgment  in  the 
matter,  and  if  he  should  be  of  opinion  that  the  rates  fixed  by 
the  statute  are  unjust  and  unreasonable,  he  was  at  liberty  to  act 
for  the  time  being  under  the  direction  and  advice  of  the  mort- 
gage trustees,  who  are  the  persons  having  the  most  at  stake  in 
the  matter.  No  harm  would  come  from  this  course,  as  the  funds 
would  be  in  the  control  of  the  court;  and   if  it  should   turn  out 

'    New  Jersey  &  N.  Y.  I!.  Co.   in  re,  29     wanna  &  Western    K.  11.  Co.  V.  Erie   K\. 

N.  J  Eq.  67.    Bee,  also,  Delaware,  Lacka-    Co.  21  N.  J.  Eq.  298. 

2  McElrath  in  re,  2  Dill.  -jco. 
475 


§  498.]  THE   RIGHTS   AND   LIABILITIES   OF   A   RECEIVER. 

that  they  had  been  improperly  received,  they  would  be  restored 
to  the  parties  who  had  overpaid. 

498.  What  payments  are  within  the  discretion  of  a  re- 
ceiver. —  It  is  a  well  recognized  principle  that  a  receiver  should 
not,  without  the  previous  direction  of  the  court,  incur  any  ex- 
penses, on  account  of  the  property  in  his  hands,  beyond  what  is 
absolutely  essential  to  its  preservation  and  use.1  In  all  matters 
involving  a  large  outlay  of  money,  the  receiver  should  apply  to 
the  court  in  advance,  for  authority  to  make  the  proposed  expend- 
iture ;  but,  except  in  extraordinary  cases,  the  submission  by  the 
receiver,  at  frequent  intervals,  of  his  accounts  to  the  master,  giv- 
ing the  latter  an  opportunity  to  disallow  whatever  he  may  not 
approve,  is  regarded  as  a  sufficient  reference  to  the  court  for  its 
ratification  of  the  receiver's  proceedings.2  All  outlays  of  a  re- 
ceiver of  a  railroad  made  in  good  faith,  in  the  ordinary  course 
of  the  management  and  operation  of  it,  or  so  made  with  a  view 
to  advance  and  promote  the  business  of  the  road,  and  make  it 
profitable  and  successful,  are  fairly  within  the  limit  of  discretion 
necessarily  allowed  him.  Thus,  payments  made  by  him  as  re- 
batement  of  freight  to  shippers,  in  order  to  secure  their  custom 
and  increase  the  business  of  the  road,  being  in  the  nature  of  draw- 
backs, such  as  are  usual  with  transportation  companies,  are  prop- 
erly within  his  discretion.3 

The  earnings  of  a  railway  company  in  the  hands  of  a  receiver 
are  chargeable  with  valid  claims  for  goods  lost  in  transportation, 
and  for  damage  done  to  them,  while  the  road  is  under  the  man- 
agement of  the  receiver.  Such  losses  are  incident  to  the  work- 
ing of  the  road,  and  may  be  regarded  as  part  of  the  ordinary 
expenses  of  working  it.  The  bondholders  are  entitled  only  to 
what  remains  of  the  earnings  of  the  road  after  charges  of  this 
kind  and  other  expenses  of  management  are  paid.4 

In  accordance  with  this  rule  a  receiver  is  not  allowed  to  charge 
in  his  account  for  expenditures  made  by  him  to  defeat  a  pro- 
posed subsidy  from  a  city  to  aid  in  the  construction  of  a  parallel 
line  of  railway,  or  to  defeat  any  contemplated  aid  for  such  an  en- 

1  Cowdrey  v.  Galveston,  Houston  &  331  ;  Coe  v.  New  Jersey,  &c.  R.  R.  Co.  27 
Henderson  R.  R.  Co.  93  U.  S.  352  ;  S.  C.     N.  J.  Eq.  37. 

9  Am.  Ry.  Reg.  3G1.  3  Cowdrey  v.  Railroad  Co.  1  Woods,  331. 

2  Cowdrey  v.   Railroad   Co.  1    Woods,         *  Cowdrey   v.    Galveston,    Houston  & 

Henderson  R.  R.  Co.  93  U.  S.  352. 
476 


CANNOT  BE  SUED  WITHOUT  LEAVE  OF  COURT.     [§  499 

terprise.  Although  the  proposed  line  of  road  might  diminish  the 
future  earnings  of  the  road  in  his  charge,  he  is  not  allowed  to  de- 
termine for  himself  the  question  of  the  advisability  of  the  ex- 
penditure, or  to  appropriate  funds  in  his  charge  to  defeat  the 
measure.1 

II.  A  Receiver  cannot  be  sited  without  leave  of  the  Court  appoint- 
ing him. 

499.  In  general.  —  A  receiver  appointed  by  a  Court  of  Equity 
to  take  charge  of  and  manage  property  while  litigation  is  pend- 
ing touching  such  property  is  but  the  hand  of  the  court  to  hold 
possession  of  and  manage  the  property  under  the  direction  of 
the  court,  and  is  not  supposed  to  act  in  the  interest  of  one  party 
more  than  another.  He  holds  and  manages  the  property  for  the 
benefit  of  the  party  to  whom  the  court  may  adjudge  it;  and  act- 
ing in  this  fiduciary  capacity  only,  he  is  not  subject  to  suit  by  any 
party  who  may  have  complaint  against  him,  without  leave  first  ob- 
tained from  the  court  appointing  him.2  While  property  is  in  the 
possession  of  a  court  of  the  United  States  through  its  receiver, 
all  proceedings  in  a  state  court  affecting  it  without  authority  of 
the  federal  court  are  void.  This  statement  applies  not  only  to 
ordinary  suits,  but  to  every  kind  of  legal  proceeding  affecting 
the  property.  Thus,  while  a  railroad  is  in  the  possession  of  a  re- 
ceiver of  a  court  of  the  United  States,  a  telegraph  company  can 
acquire  no  title  to  a  right  of  way  over  the  line  of  the  railroad  by 
proceedings  for  condemnation  in  a  state  court.3 

Objection  was  made  in  the  Supreme  Court  of  the  United 
States  that  a  junior  mortgagee  could  not  file  a  bill  of  foreclosure 
without  leave,  while  the  mortgaged  premises  were  at  the  time  in 
the  possession  of  a  receiver  appointed  in  a  former  suit  in  the  same 
court.  In  reply  to  this  Mr.  Justice  Strong  said  : 4  "If  there  could, 
under  any  circumstances,  be  any  force  in  this  objection,  there  is 
none  now.  Both  suits  were  brought  in  the  same  court  ;  these  ap- 
pellants appeared,  answered,  and  cross-examined  witnesses,  ami 
made  no  allegation  that  the  suit  had  been  brought  without  Leave 

i   Cowdrey    v.    Galveston,   Houston   &  3  Western  Union  Telegraph  Co.  v.  At- 

Henderson  R.  B.  Co.  93  U.  8.  882  ;  S.  C.  lantic  &  Pacific  Telegraph  ('•>.  7  Biss.367. 

9  Am.  By.  Rep.  861.  4  .Jerome  v.  McCarter,  94   l     8.  784, 

'-  Hale  v.  Duncan,  U.  S.  C.  C.  for  Miss.  737. 
6  Wash.  L.  B  285  ;  6  Reporter,  422. 

477 


§  500.]  THE   RIGHTS   AND   LIABILITIES   OF   A   RECEIVER. 

until  about  a  year  and  a  half  afterwards.  It  was  then  too  late. 
They  must  be  held  to  have  acquiesced ;  and,  if  not,  leave  of  the 
court  to  commence  and  prosecute  the  suit  must  be  presumed  after 
the  orders  made  to  facilitate  its  progress." 

500.  In  what  courts  a  receiver  may  be  sued.  —  The  court 
under  which  the  receiver  is  acting  may  take  cognizance  of  the 
question  of  the  receiver's  liability  for  his  official  acts,  or  may  per- 
mit the  party  aggrieved  to  sue  at  law,  unless  the  jurisdiction  of 
the  court  in  the  matter  be  assailed,  in  which  case  it  must  assume 
exclusive  jurisdiction.1  As  a  general  rule,  receivers  are  amenable 
solely  to  the  court  by  which  they  are  appointed  ;  but  this  rule 
does  not  apply  when  citizens  of  another  state  seek  remedy  against 
them  in  such  other  state,  and  the  receiver's  liability  has  already 
been  determined  by  the  courts  of  the  state  in  which  he  was  ap- 
pointed.2 Ordinarily,  however,  a  receiver  cannot  be  sued  for  as- 
sets in  his  hands  without  first  obtaining  leave  of  the  appointing 
court.3  But  the  decree  of  court  appointing  a  receiver  entitles  him 
to  protection  in  the  possession  of  such  property  only  as  he  is  en- 
titled to  take  possession  of  it.  When  he  takes  possession  of  prop- 
erty to  which  he  has  no  claim,  he  is  not  acting  as  the  officer  or 
representative  of  the  court,  but  as  a  mere  trespasser.  The  right- 
ful owner  of  a  locomotive  engine,  which  a  railroad  company  in  the 
hands  of  a  receiver  never  had  any  interest  in,  may  take  posses- 
sion of  it  by  a  replevin  suit,  without  first  obtaining  leave  of  the 
court  appointing  the  receiver,  although  the  engine  is,  at  the  time, 
used  upon  the  road.4 

The  court,  whose  officer  a  receiver  is,  may  restrain  persons 
within  its  jurisdiction  from  prosecuting  suits  in  foreign  courts, 
whereby  the  earnings  of  a  railroad  in  the  hands  of  the  receiver  are 
locked  up  by  attachment  or  trustee  process.5  The  court  in  such 
case  acts  upon  the  ground  that  the  party  upon  whom  the  order  is 
made  is  within  the  jurisdiction  of  the  court;  that  the  receiver,  as 
the  officer  of  the  court,  is  entitled  to  protection  while  in  the  proper 
discharge  of  his  duty ;  and  that  persons  interfering  with  his  col- 

1  Klein  v.  Jewett,  26  N.  J.  Eq.  474 ;  5  Vermont  &  Canada  R.  R.  Co.  v.  Ver- 
Meara  v.  Holbrook,  20  Ohio  St.  137.  mont  Central  R.  R.  Co.  46  Vt.  792 ;  Bar- 

2  Paige  v.  Smith,  99  Mass.  395.  ton  v.  Barbour,    Sup.  Ct.  D.  C.  1877,  6 

3  De  Graffenreid  v.  Brunswick  &  Al-  Wash.  L.  R.  No.  6. ;  6  Cent.  Law  Jour, 
bany  R.  R.  Co.  57  Ga.  22.  201. 

4  Hills  v.  Parker,  111  Mass.  508. 

478 


CANNOT   BE   SUED   WITHOUT   LEAVE   OF   COURT.  [§  501. 

lecting  the  earnings  of  the  road  in  his  possession  are  guilty  of 
contempt  of  court. 

The  question  whether  a  receiver  is  liable  to  action  in  a  court 
other  than  that  from  which  he  has  received  his  appointment  is 
one  upon  which  there  is  some  conflict  of  authority.  The  English 
doctrine  is  that  a  receiver  is  an  officer  of  the  court,  his  possession 
the  possession  of  the  court,  and  that  without  leave  of  such  court 
no  action  can  be  maintained  against  him.  Such,  also,  is  the  doc- 
trine supported  by  the  weight  of  authority  in  this  country.1 

501.  A  court  making  the  appointment  of  a  receiver  may- 
draw  to  itself  all  controversies  to  which  the  receiver  is  a 
party ;  yet  it  does  this  by  acting  directly  upon  the  parties,  and 
not  by  challenging  the  jurisdiction  of  other  tribunals.2  The  mere 
fact  of  the  appointment  constitutes  no  plea  to  the  jurisdiction 
of  other  courts  ;  their  ordinary  jurisdiction  is  in  no  way  affected 
by  the  appointment,  in  respect  to  matters  in  which  the  receiver 
may  be  interested,  or  which  affect  the  property  placed  in  his 
hands.3  The  court  appointing  the  receiver  is  not  thereby  com- 
pelled to  assume  jurisdiction  of  all  controversies  to  which  the 
receiver  may  become  a  party,  but  may  leave  their  determina- 
tion to  any  court  of  appropriate  jurisdiction.4  It  may  assert  its 
right  to  take  all  such  controversies  to  itself,  by  acting  directly 
upon  the  parties,  and  compelling  them  to  proceed  nowhere  else 
than  in  its  forum.  Its  power  is  unlimited  for  purposes  of  pro- 
tection to  restrain  by  injunction  all  suits  in  other  courts  against 
the  receiver,  or  to  punish  as  for  a  contempt  any  interference 
with  its  officers  by  force  or  by  action,  but  it  may  use  its  dis- 
cretion in  this  respect.5  Thus  a  suit  was  brought  in  a  court  of 
the  State  of  Kansas  by  a  county  treasurer  against  the  St.  Joseph 
and  Denver  City  Railr<  tad  Company  to  recover  certain  taxes,  af- 
ter a  receiver  of  the  company  had  been  appointed  by  the  Circuit 
Court   of  the  United   States.     The  petition  alleged  the  appoint- 

i  See  article  by  Mr.  High,  2  South. Law  4  Hills  v.  Parker,  111    Mass.  508;  St. 

Rev.  576,  October,  L  876,  and  cases  cited;  Joseph  &  Denver  City  R.  R.  Co.  v.  Smith, 

Wiswall  v.  Sampson,  l  i  How.  52,  65.  supra, 

»  St.  Joseph  &  Denver  City  It.  R.Co.v.  6  St.  Joseph    &   Denver  Citj   R.  B.  Co. 

Smith,  19  Kami.  225;  6  Reporter,  831.  v.  Smith,  supra,  per  Brewer,  J.;  Kinney 

»  Blumenthal  v.  Brainerd,  38  Vt.  402,  v.  Crocker,    is   Wis.  794;    Chantauqna 

407.  County    Bank  v.  Kislev,  19  N.  V.  869- 

479 


§  502.]  THE   RIGHTS   AND   LIABILITIES   OF   A   RECEIVER. 

ment  of  the  receiver  and  his  possession  and  control  of  the  road. 
Without  the  issue  or  service  of  any  process  the  company  and 
receiver  filed  a  joint  answer,  in  which  they  admitted  that  a  por- 
tion of  the  taxes  were  properly  chargeable  against  the  company, 
and  consented  that  judgment  might  be  rendered  against  them  in 
the  action  for  that  amount.  They  also  alleged  the  appointment 
of  the  receiver  by  the  United  States  Circuit  Court,  that  he  was 
not  amenable  to  the  process  of  the  state  court,  and  prayed  that 
as  to  him  the  suit  might  be  dismissed  ;  but  it  was  held  that  the 
state  court  had  jurisdiction,  and  might  properly  render  judgment 
against  the  receiver.  It  is  to  be  presumed  in  such  case  that  if 
the  Circuit  Court  in  its  discretion  deemed  it  best  to  draw  to  itself 
this  controversy,  it  would  have  done  so.  Moreover,  it  would  seem 
that  the  receiver,  having  voluntarily  come  into  court,  admitted 
that  a  part  of  the  claim  was  due,  and  consented  that  judgment 
mio-ht  be  rendered  against  him,  could  not  be  allowed  afterwards 
to  question  the  jurisdiction  of  the  court.1 

502.  The  proper  remedies  against  a  receiver.  —  A  receiver 
in  possession  of  property  represents  the  court,  and  acts  as  its  rep- 
resentative in  the  interest  of  all  persons  concerned  in  the  prop- 
erty. There  can  be  no  interference  with  his  possession  except 
with  leave  of  court.  Any  person  claiming  the  property,  or  any 
interest  in  it,  may  present  his  claim  to  the  court  by  petition,  or 
may  be  made  a  party  to  the  pending  suit,  and  litigate  his  claim 
in  that ;  or  he  may,  by  leave  of  court,  bring  a  suit  at  law  for  the 
recovery  of  the  property.  The  receiver  will  not  be  ordered  to 
deliver  the  property  to  a  claimant  until  his  right  is  established  in 
one  of  these  modes ;  and  care  will  always  be  taken  to  protect  the 
receiver  from  personal  liability  or  loss.  In  accordance  with  these 
general  principles,  one  who  claims  rolling  stock  in  possession  of  a 
receiver  should  try  his  title  to  it  either  by  an  equitable  proceed- 
ing by  petition,  or  in  the  pending  suit ;  or,  upon  obtaining  leave 
of  court,  by  a  suit  at  law  for  possession.  An  action  of  trover  is 
not  an  appropriate  remedy  for  trying  the  question  of  title,  because 
that  is  not  a  suit  for  the  possession,  but  is  an  attempt  to  hold  the 
receiver  personally  liable  for  the  value  of  the  property.  A  de- 
mand upon  the  receiver  for  possession  and  his  refusal  to  deliver  it 
do  not  constitute  a  conversion  on  his  part,  and  lay  the  foundation 

1  St.  Joseph  &  Denver  City  R.  It.  Co.  v   Smith,  19  Kans.  225. 
480 


CANNOT   BE   SUED    WITHOUT   LEAVE    OF   COURT.       [§§  503,  504. 

for  such  a  suit.1  Whether  in  any  case  an  action  of  trespass  or 
trover  can  be  maintained  against  a  receiver,  when  he  rightfully 
takes  possession  of  the  property,  is  questionable.  If  the  property 
be  real  estate,  so  that  the  title  can  be  tried  in  an  action  of  trespass 
without  changing  such  title,  or  rendering  the  receiver  liable  for 
the  value,  perhaps  there  would  be  no  objection  to  its  maintenance. 
Or,  if  he  has  received  the  rents  of  real  estate,  or  has  sold  personal 
property,  by  order  of  the  court,  perhaps  the  amount  in  his  hands 
may  be  claimed  in  a  suit  at  law.  But  a  claim  to  cars,  engines,  or 
like  property  in  the  possession  of  a  receiver,  cannot  be  enforced  as 
a  claim  for  damages.2 

An  original  bill  against  a  receiver  by  a  party  to  the  suit  in 
which  the  receiver  was  appointed  is  unnecessary,  and  a  contempt 
of  court.  The  proper  mode  of  proceeding  is  by  petition  in  the 
same  cause,  or  by  motion  in  that  cause  to  obtain  leave  to  prosecute 
an  independent  suit  either  at  law  or  in  equity.3 

503.  A  statute  authorizing  suits  against  receivers  does  not 
avail  against  this  rule.  —  The  settled  rule,  that  a  suit  cannot  be 
commenced  against  a  receiver  without  leave  being  first  obtained 
from  the  court  appointing  such  receiver,  is  not  changed,  as  regards 
the  courts  of  the  United  States,  by  a  statute  of  a  state4  which  pro- 
vides that  all  receivers  appointed  by  any  court,  and  trustees  and 
assignees  running  or  operating  railroad  trains  in  that  state,  carry- 
ing either  freight  or  passengers,  may  be  sued  in  the  several  courts 
of  that  state  in  all  matters  ex  contractu  and  ex  delicto  arising 
after  their  appointment,  without  leave  of  the  court  appointing  or 
controlling  them  being  first  had  ;  and  that  such  suits  may  be 
prosecuted  to  final  judgment,  and  satisfaction  may  be  had  out  of 
any  property  held  by  them  in  their  fiduciary  capacity.  No  state 
can  pass  any  law  regulating,  or  in  any  manner  affecting,  the  juris- 
diction and  practice  of  the  federal  courts.5 

504.  An  execution  cannot  be  levied  upon  property  in  the 
hands  of  a  receiver  without  permission  of  the  court  whoso  ollicer 

1  Morrill  v.  Noyes,  56  Me.  458.  leave  to  sue  a  receiver  in  thecourts  of  that 

a  Per   Davis,  J.j  in    .Morrill    ».  Noyes,  state  without  leave  previously   granted. 

mpra.  Laws  1872,  p.  31,  §  L. 

s  Payne  -••  Baxter,  ^  Tenn.  Ch.  517.  '  Bale  v.  Di an,  V.  s.  Circuit  Ct.  N. 

4  Act  of  Jan.  6,  1877,  of  Mississippi.    A  Dist.  of  Miss.  7  Cent.  L.  J  146. 
similar  statute  of  tin-  State  of  Ohio  gives 

81  481 


§  505.]  THE   EIGHTS   AND   LIABILITIES   OF   A   RECEIVER. 

the  receiver  is.  That  court  may  order  the  sheriff  to  withdraw 
his  lev}-  and  answer  for  contempt  in  making  it.1  If  it  could  be 
taken  piecemeal  from  the  custody  of  the  receiver,  the  remedy  of 
the  creditors  under  the  mortgage  would  be  of  little  value.  The 
remedy  of  one  who  claims  that  the  property  was  not  legally  cov- 
ered by  the  mortgage,  or  that,  for  any  reason,  it  is  not  legally 
held  by  the  receiver,  is  to  apply  to  the  court  which  appointed  the 
receiver  to  ask  its  discharge  out  of  custody,  in  order  that  he  may 
proceed  against  it.2 

The  fund  in  the  hands  of  a  receiver  cannot  be  disposed  of  by 
the  mortgagor  to  the  prejudice  of  the  mortgagee  ;  and  the  cred- 
itors of  the  mortgagor,  having  no  greater  rights  in  this  respect 
than  the  mortgagor  himself,  cannot  reach  this  fund  by  attach- 
ment or  trustee  process.3  The  possession  of  the  receiver  is  the 
possession  of  the  court  itself.  This  rule  is  applicable  not  only  to 
property  actually  in  the  hands  of  the  receiver,  but  to  that  of 
which  he  has  constructive  possession.  Any  unwarranted  inter- 
ference with  the  property,  either  by  taking  forcible  possession  of 
it,  or  by  legal  proceedings  begun  without  the  sanction  of  the  court 
appointing  the  receiver,  is  a  direct  and  immediate  contempt  of 
court,  punishable  by  attachment.4  The  commencement  and  pros- 
ecution of  a  suit  against  the  receiver  by  garnishee  process,  to 
reach  a  debt  or  funds  belonging  to  the  company,  of  which  he  is 
made  receiver,  without  the  sanction  of  the  court  appointing  him,  is 
such  an  interference.  Such  a  proceeding  is  an  attempt  to  de- 
prive the  receiver  of  credits  to  which  he,  and  he  only,  is  lawfully 
entitled,  and  hence  is  a  direct  interference  with  the  court  in  its 
administration  of  the  estate  over  which  it  has  appointed  its  re- 
ceiver. 

505.  Any  wilful  interference  with  a  receiver  in  the  posses- 
sion of  the  property  placed  in  his  charge  is  a  contempt  of  the 

1  Coe  v.  Columbus,  Piqua  &  Ind.  R.  R.  gation  Co.,  Kay,  142  ;  Bowen  v.  Brecon 
Co.  10  Ohio  St.  372 ;  Russell  v.  East  An-     Ry.  Co.  L.  R.  3  Eq.  541. 

glian  R.  Co.  6  Railway  Cases,  501  ;  3  Mac.  3  Newport  &  Cincinnati  Bridge  Co.  v. 

&  G.  151 ;  Skinner  v.  Maxwell,  68  N.   C.  Douglass,  12  Bush  (Ky.),  673,  709. 

400.  4  Richards  v.  People,  81  111.    551.     In 

2  Robinson    v.  Atlantic  &  Great  West-  this  case  an  attorney,  who  persisted  in  a 
ern  Ry.  Co.  66   Pa.  St.  160.     See  Potts  garnishee  process  against  funds  which  the 
v.  Warwick  &  Birmingham  Canal  Navi-  receiver  was  entitled  to  collect,  was  pun- 
ished by  fine  and  imprisonment. 

482 


CANNOT   BE   SUED   WITHOUT   LEAVE   OF   COURT.  [§  506. 

authority  of  the  court,  and  punishable  as  such  ; 1  and  it  matters 
not  whether  such  interference  be  under  the  form  of  law,  as  for  in- 
stance when  one  seizes  the  property  by  the  process  of  another 
court,  or  whether  possession  be  forcibly  taken  by  a  violent  mob, 
as  was  the  case  during  the  railroad  riots  in  the  summer  of  1877. 
Accordingly  rioters  and  strikers,  who  at  that  time  prevented  re- 
ceivers from  running  trains  upon  roads  under  their  charge  by  for- 
cibly seizing  the  property,  were  rightly  punished  by  imprisonment 
for  acting  in  contempt  of  court.2  Although  the  power  to  punish 
for  contempt  is  limited  to  the  misbehavior  of  persons  in  its  pres- 
ence, or  so  near  as  to  obstruct  the  administration  of  justice,  yet 
the  disobedience  of  or  resistance  by  any  person  to  any  lawful  writ, 
process,  order,  rule,  decree,  or  command  of  the  court,  anywhere 
within  the  jurisdiction  of  the  court,  is  treated  in  as  summary  a 
manner  as  if  the  contempt  were  committed  in  the  actual  presence 
of  the  court.  The  accused  are  not  entitled  as  of  right  to  a  trial 
by  jury,  but  the  court  will  proceed  in  a  summary  manner  to  hear 
the  case  and  order  punishment.  But  the  court  will  not  take  this 
summary  action  except  in  cases  free  from  doubt,  and  where  the 
overt  acts  of  contempt  are  clearly  and  distinctly  proved.3 

506.  There  are  not  wanting  instances  in  ■which  courts,  jeal- 
ous of  their  power  and  jurisdiction,  have  denied  the  rule  that 
a  receiver  is  the  agent  and  officer  of  the  court  by  which  he  is  ap- 
pointed, and  amenable  to  no  other  tribunal,  and  have  undertaken 
to  exercise  authority  over  receivers  appointed  by  another  court 
without  its  consent.  Thus,  an  injunction  having  been  granted  by 
a  court  of  the  State  of  Illinois  against  the  Cairo  and  Vincennes 
Railroad  Company  restraining  its  agents  from  using  in  a  partic- 
ular way  a  street  of  the  city  of  Cairo,  receivers  of  the  road  were 
subsequently  appointed  by  the  Circuit  Court  of  the  United  Stales, 
who  entered  upon  their  duties,  and  apparently  used  the  street  in 
disregard  of  the  injunction.  A  proceeding  for  contempt  was  there- 
upon instituted  in  the  state  court  against  the  receivers  without 
reference  to  the  court  appointing  them.  Upon  appeal  to  the  Su- 
preme  Courl  of  tin-  state  the  judgment  of  the  court  below,  holding 
tie-  receivers  amenable  to  that,  court,  was  affirmed.     The  decision 

1    Robinson   v.   Atlantic  &  Great  West-        2  Secor  v.  Toledo,  Peoria   &    Warsaw 
era  Ft,  i:.  Co.  66   Pa.  St.   160;  Fripp  v.     Ky.  Co.  7  liiss.  r.i.'i. 
Bridgewater,  &c.  By.  Co.  3  W.  I;  356.  •  King  v.  Ohio  &  Miss.  Ky.  Co.  7  Biss. 

.r)29. 

188 


§  507.]  THE    RIGHTS    AND    LIABILITIES    OF    A    RECEIVER. 

proceeds  upon  the  ground  that  receivers  are  the  agents  of  the  cor- 
porations whose  property  they  are  put  in  charge  of.1  "  The  in- 
i unction  was  against  the  corporation  as  a  legal  entity,  and  its 
agents,  servants,  &c.  When  the  receivers  were  appointed  by  the 
federal  court  there  was  no  change  in  the  corporate  body.  Its  ex- 
istence was  intact,  with  its  legal  functions  unimpaired,  but  simply 
its  acts  were  performed  by  agents  appointed  by  the  court,  and  not 
by  the  corporation.  And  the  agents  appointed  by  the  court  to 
perform  its  duties  and  exercise  its  functions  are  legally  its  agents, 
although  they  are  under  the  direction  of  the  court  appointing 
them  within  the  limits  of  its  charter.  The  court  only  authorizes 
the  receivers  to  exercise  the  privileges  and  perform  the  duties  pre- 
scribed by  the  charter." 

But  granting  that  a  court  assuming  the  management  of  a  cor- 
poration is  bound  to  respect  the  limitations  imposed  upon  it  by 
its  charter  and  by  the  law,  the  question  remains  what  tribunal 
shall  control  the  agents  of  the  court,  and  determine  whether  they 
are  acting  within  the  limits  of  the  charter  and  of  the  law  ?  Upon 
sound  legal  principles  it  has  been  established  that  the  court  ap- 
pointing the  receivers  is  the  only  one  that  can  exercise  any  author- 
ity over  them.  If  other  courts,  without  the  consent  of  the  court 
appointing  the  receivers,  were  allowed  to  exercise  authority  over 
its  agents,  this  court  would  in  fact  submit  itself  to  the  control  of 
every  other  court  which  might  be  invoked  to  sit  in  judgment  upon 
the  acts  of  receivers.  These  officers  would  cease  to  be  the  agents 
of  the  court  that  appointed  them  ;  and  whose  agents  they  would 
be  it  might  be  difficult  to  determine.  The  administration  of 
equity  through  this  instrumentality  would  thus  become  impos- 
sible. 

507.  The  courts  of  Wisconsin  and  Iowa  have  also  departed 
from  this  doctrine,  and  held  that  in  all  cases  where  there  is  no 
attempt  to  interfere  with  the  actual  possession  of  the  receiver,  a 
suit  may  be  prosecuted  against  him,  in  any  court  of  competent 
jurisdiction,  without  the  permission  of  the  court  from  which  the 
receiver  derived  his  appointment.  In  the  former  state,2  an  action 
in  its  courts  against  a  receiver  who  was  operating  a  railroad  under 

1  Safford  v.  People,  85  111.  558;  5  Cent,  see  St.  Jo.  &  Denver  City  R.  R.  Co.  v. 
L.  J.  384;  17  Albany  Law  J.  209.  Smith,  Sup.  Ct.  Kansas,  July  T.  1877,  6 

2  Kinney  v.  Crocker,  18  Wis.  74;  and     Cent.  L.  J.  59;  19  Kans.  225. 

484 


CANNOT  BE  SUED  WITHOUT  LEAVE  OF  COURT.    [§  508. 

the  appointment  of  the  District  Court  of  the  United  States,  for 
personal  injuries  occasioned  through  the  negligence  of  his  servants, 
was  maintained  without  previous  leave  obtained  from  the  latter 
court  to  prosecute  the  action.  The  Supreme  Court  of  the  state 
declared  that,  although  a  plaintiff  desiring  to  prosecute  a  legal 
claim  for  damages  against  a  receiver  might,  in  order  to  relieve 
himself  from  liability  to  have  his  proceedings  arrested  under  the 
authority  of  a  court  of  equity  to  restrain  suits  at  law  under  some 
circumstances,  very  properly  obtain  leave  to  prosecute,  yet  his 
failure  to  do  so  is  no  bar  to  the  jurisdiction  of  the  court  at  law. 
The  court  object  that,  inasmuch  as  the  federal  courts  have  juris- 
diction of  proceedings  against  railroads,  the  result  of  a  require- 
ment that  leave  should  be  first  obtained  to  prosecute  a  suit  against- 
a  receiver  would  be  to  draw  into  those  courts  not  only  the  juris- 
diction of  all  actions  respecting  the  title  to  property  in  the  cus- 
tody of  a  receiver,  but  all  actions  for  the  non-performance  of  con- 
tracts by  him,  and  the  state  courts  would  be  absolutely  divested 
of  jurisdiction  unless  the  federal  courts  saw  fit  to  grant  it. 

This  case  was  cited,  and  its  doctrine  approved,  in  the  recent 
case  of  Allen  v.  Central  Railroad  Company  in  Iowa.1 

508.  These  cases  were  assailed  with  much  vigor,  and  their 
doctrine  denied  in  a  recent  case  before  the  Circuit  Court  of  the 
United  States  for  the  District  of  Iowa.  There  was  an  attachment 
for  contempt  in  commencing  a  suit  in  a  court  of  the  State  of  Iowa 
against  a  receiver  appointed  by  the  United  States  Circuit  Court. 
Judge  Love,  after  referring  to  these  cases,  said  :  2  "  In  my  judg- 
ment, the  doctrine  of  the  Iowa  decision  contravenes  the  whole 
scheme  of  equity  jurisdiction  in  the  matter  of  appointing  receivers, 
and  in  the  taking  of  possession,  through  them,  of  the  property  in 
litigation.  The  Court  of  Equity  takes  cognizance  of  a  suit  against 
an  insolvent  company  or  corporation,  and  where  danger  exists 
that  the  litigation  may  prove  fruitless  to  creditors,  by  waste  or  a 
fraudulent  disposition  of  the  property,  the  court  will  take  it  into 
ii  by  the  appointment  of  a  receiver.  The  property  thus 
becomes  a  fund   subject  to  the  disposition  of  the  court,  and  under 

1  42  Iowa,  08.1.      The  COUrt  in  tliis  ca^e  arc  very  far  from  being  authorities  in  mi]>. 

also  cite  Paige  '■.  Smith,  99   Mass.  895,  porl  <>f  it. 

and  Hills  ,-.  Parker,  m    Mass.   508,  in        -  Thompson  v.  Bcott,  23  Int.  Rev.  Sec. 

rapport  of  the  position   taken,  bat  they  876  ;  i  Dill.  508. 


§  508.]  THE    RIGHTS    AND    LIABILITIES    OF   A   RECEIVER. 

its  exclusive  control.  The  principle  that  the  court  which  has  pos- 
session and  control  of  a  fund  has  the  exclusive  right  to  determine 
all  claims  and  liens  asserted  against  it  is  fundamental.  Hence, 
every  court  of  equity,  in  such  a  case,  assumes  to  decide  all  contro- 
versies touching  the  subject  matter  of  the  suit  and  the  fund  ;  to 
determine  the  existence  and  priority  of  all  liens  ;  to  adjust  and 
settle  all  disputed  claims  ;  marshal  the  assets,  and,  finally,  to  dis- 
tribute the  surplus  among  the  general  creditors  pro  rata,  upon  its 
own  principle  of  equality  among  creditors.  The  very  ground  and 
reason  of  this  jurisdiction  is  the  inadequacy  of  mere  legal  reme- 
dies. But,  according  to  the  Iowa  decision,  there  is  no  reason  why 
any  party  claiming  satisfaction  out  of  the  fund  may  not,  without 
the  consent  of  the  receiver's  court,  assert  his  rights  in  any  compe- 
tent court,  provided  he  does  not  attempt  to  disturb  the  possession 
of  the  receiver;  and  thus  may  the  decision  of  the  claims  and  con- 
troversies involved  in  the  litigation  be  withdrawn  from  the  Court 
of  Equit}r,  where  they  properly  belong,  and  transferred  to  the 
courts  of  law.  And  the  result  would  be  that  claims  against  the 
fund  would  be  determined,  not  by  the  court  having  jurisdiction  of 
the  case  and  control  of  the  fund,  but  by  other  and  different  tribu- 
nals  The  view  thus  presented  applies  with  redoubled  force 

to  railroad  foreclosure  suits  in  the  United  States  Circuit  Court. 
The  non-resident  citizen  comes  here  to  set  up  and  enforce  the  lien 
of  his  mortgage,  for  the  very  reason  that  he  thinks  he  would  be 
exposed  to  injustice  in  the  state  courts  from  local  prejudice.  But 
no  sooner  does  he  get  the  railroad  property  in  the  hands  of  a  re- 
ceiver than  that  officer,  if  the  doctrine  of  the  Iowa  court  be  sound, 
is  exposed  to  suits  in  the  state  courts  upon  claims  and  demands  of 
all  kinds,  and  thus  the  substantial  end  for  which  the  non-resident 
complainant  comes  here  is  practically  defeated.  The  receiver  him- 
self has  no  beneficial  interest  in  the  controversies  waged  against 
him  in  the  local  courts,  and  the  litigation  is  practically  between 
the  non-resident  citizen  and  the  citizen  of  Iowa.  Suits  may  be 
brought,  and  judgments  innumerable  rendered,  against  the  re- 
ceiver, all  along  the  line  of  the  railway,  by  justices  of  the  peace  and 
other  local  courts.  These  judgments  may,  if  valid,  be  made  liens 
upon  the  railway  property,  and  the  federal  court  must  recognize 
and  pay  them;  the  state  courts  thus  take  from  the  former  court 
the  power  of  determining,  first,  what  debt  shall  be  paid  out  of  the 
funds  in  its  hands  ;  second,  what  claims  shall  be  made  liens  upon 
486 


LIABILITY   TO   SUIT   FOR   NEGLIGENCE   OF  EMPLOYEES.      [§  509. 

the  mortgaged  property.  Thus  would  the  federal  court  sit  merely 
to  register  and  pay  the  judgment  and  decrees  of  the  state  courts. 
....  But  assuming  that  this  court  would  not  sit  here  merely  to 
register  the  judgments  and  decrees  of  the  state  courts,  and  to  pay 
them  without  inquiry  out  of  the  trust  fund  in  our  possession,  it 
may  be  asked  what  harm  will  result  to  the  non-resident  creditors 
from  permitting  suits  to  proceed  against  receivers  ?  I  answer  that 
such  judgments,  even  if  we  repudiate  them  and  refuse  to  pay  them, 
would  cast  a  cloud  upon  our  title,  and  seriously  affect  a  sale  of  the 
railroad  property.  When  the  receivership  is  at  an  end,  and  the 
property  no  longer  under  our  control,  but  in  the  hands  of  a  pur- 
chaser at  the  foreclosure  sale,  I  know  of  no  reason  why  the  state 
court  might  not  proceed  to  enforce  the  judgment  by  execution  and 
sale.  At  all  events,  the  apprehension  of  such  a  result  would  cast 
such  a  cloud  upon  the  title  as  effectually  to  defeat  an  advantageous 
sale,  and  this  furnishes  an  all-sufficient  reason  why  we  should,  by 
injunction  and  by  process  of  contempt,  prevent  the  prosecution  of 
suits  against  our  receivers." 

The  soundness  of  the  doctrine  set  forth  in  this  judgment  is  be- 
yond question,  and  the  position  of  the  state  courts  to  the  contrary 
is  wholly  indefensible. 

III.   A  Receiver's   Liability   to    Suit  for   the   Negligence    of  his 

Employees. 
509.  Whether  a  receiver  is  liable  for  the  negligence  of  his 
employees.  —  There  is  much  diversity  of  opinion  upon  the  ques- 
tion whether  a  receiver  is  liable  for  the  negligence  of  his  em- 
ployees in  the  same  manner  and  to  the  same  extent  that  a  railway 
company,  operating  its  road,  is  liable.  On  the  one  hand,  a  re- 
ceiver, in  operating  the  road,  is  said  to  exercise  the  powers  and 
rights  of  a  common  carrier,  and  is,  therefore,  subject  to  all  the 
duties  and  liabilities  of  a  common  carrier.1  Whet  her  the  receiver 
is  regarded  as  the  officer  of  the  law,  or  the  representative  of  the 
proprietors  of  the  corporation  or  its  creditors,  or  as  combining 
all  these  characters,  it  is  said  he  is  intrusted  with  the  powers  of 
the  corporation,  and  must,  therefore,  necessarily  be  burdened  with 
its  duties,  and   subjeet   to    its  liabilities.     There  can  be  no  such 

i  Blumenthal  v.  Brainerd,  88  Vt.  402  ;  brook,  20  Ohio  St.  187;  5  Am.  R.  638; 
Paige  >■.   Smith,  99  Mass.  395;  Klein  v.    Kinney  v.  Crocker,  is  Wis.  80;  Allen  v. 

Jewett,  20  X.  J.   Eq.  474;  Meara  v.  Hoi-     Central  Ii.  It.  <  !o.  l-!  Iowa,  683. 

487 


§  510.]  TIIE    RIGHTS   AND   LIABILITIES    OF   A   RECEIVER. 

thing  as  an  irresponsible  power,  exerting  force  or  authority,  with- 
out being  subject  to  duty,  under  any  system  of  laws  framed  to  do 
justice.  It  is  an  inseparable  condition  of  every  grant  of  power 
by  the  state,  whether  expressed  or  not,  that  it  shall  be  properly 
exercised,  and  that  the  grantee  shall  be  liable  for  injuries  result- 
ing directly  and  exclusively  from  his  negligence  in  its  use.1  In  a 
recent  case  in  Kentucky,  in  which,  however,  the  question  under 
consideration  was  not  involved,  Mr.  Justice  Lindsay,  upon  the 
functions  of  a  receiver  as  a  common  carrier,  said  :  "  The  receiver 
of  a  line  of  railways  is  not  the  mere  passive  agent  or  officer 
of  the  court,  charged  with  the  simple  duty  of  preserving  the 
property  intrusted  to  his  care,  and  of  collecting  the  rents  and 
profits  arising  directly  out  of  the  thing  mortgaged,  and  holding 
them  until  the  rights  of  the  litigants  shall  be  determined.  His 
duties  comprise  the  management  and  operation  of  the  roads.  He, 
ex  necessitate,  becomes  a  common  carrier,  and,  in  order  to  preserve 
the  mortgaged  property,  is  compelled  to  discharge  the  duties  of 
a  quasi  public  corporation."  2 

On  the  other  hand,  the  position  of  a  receiver  while  operating  a 
railroad  in  his  official  capacity  is  regarded  as  analogous  to  that 
of  a  public  officer,  who  is  not  responsible  for  the  negligence  of 
others  through  whom  he  may  be  compelled  in  part  to  act.3 

510.  If  a  receiver  be  liable  as  a  common  carrier,  it  is  no 
defence  at  law  that  the  defendant  is  a  receiver  acting  under 
the  authority  of  a  Court  of  Chancery.  When,  therefore,  a  suit 
at  law  is  brought  against  a  person  who  is  in  fact  a  receiver,  for 
loss  and  damage  sustained  under  his  management  of  a  railroad, 
the  Court  of  Chancery  which  appointed  him  may  in  its  discretion 
enjoin  the  prosecution  of  the  suit  at  law.4  If,  however,  a  receiver 
desires  the  protection  of  the  court,  whose  officer  he  is,  he  should 
apply  for  an  injunction,  and  in  case  he  fail  so  to  do,  the  action  at 
law  may  proceed  as  though  permission  to  bring  it  had  been  ob- 
tained from  such  court.5  He  is  deemed  to  have  waived,  if  need 
be,  such  ground  of  objection  to  the  action,  or  to  have  voluntarily 
elected  to  defend  the  action  at  law.     The  mere  fact  that  the  de- 

1  Klein  v.  Jewett,  supra,  per  Van  Fleet,        8  See  §  511. 

V.  C.  4  Morse  v.  Brainerd,  41  Vt.  550. 

2  Douglass  v.  Cline,  12  Bush  (Ky.),  608,         6  Camp  v.  Barney,  4  Hun  (N.  Y.),  373. 
628,  per  Lindsay,  J. 

488 


LIABILITY    TO    SUIT    FOR   NEGLIGENCE   OF   EMPLOYEES.       [§  510. 

fendant  was  acting  as  a  receiver  under  the  appointment  of  a  Court 
of  Chancery  is  not  recognized  as  a  defence  to  a  suit  at  law  for  a 
breach  of  any  obligation  or  duty  which  had  been  assumed  by  him 
while  acting  as  such  receiver.1  "As  between  a  receiver  and  the 
parties  interested  in  the  trust,  the  receiver  would  *be  responsible 
for  negligence ;  but  he  might  be  liable  to  other  parties  in  a  larger 
or  stricter  degree  of  responsibility.  The  assumption  by  the  de- 
fendants of  the  peculiar  duties  and  extraordinary  responsibilities 
arising  from  the  relation  of  common  carriers,  is  not  to  be  consid- 
ered as  necessarily,  if  at  all,  incompatible  with  any  duty  or  re- 
sponsibility imposed  upon  them  as  receivers.  The  plaintiff's  evi- 
dence tended  to  show  that  the  defendants  were  managing  and 
controlling  a  long  line  of  railroad,  and  conducted  and  held  them- 
selves out  as  common  carriers  over  that  line.  If  in  fact  they 
were  common  carriers  over  that  line  of  railroad,  we  think  that  it 
is  no  defence  to  an  action  at  law,  for  a  breach  of  a  duty  or  obli- 
gation arising  out  of  business  intrusted  to  them  in  that  relation, 
that  they  were  running  and  managing  the  line  of  railroad  as  re- 
ceivers under  an  appointment  of  the  Court  of  Chancery."  2 

Primarily,  any  person  having  possession  and  control  of,  and 
actually  operating  a  railroad,  is  at  law  liable  as  a  common  car- 
rier for  injuries  to  passengers  or  freight  occasioned  b}'  his  mis- 
conduct or  negligence,  or  that  of  any  of  his  servants.  He  is  thus 
the  acting,  directing,  and  governing  power  in  operating  the  road, 
and  is  the  only  tangible  principal  known  to  the  public.  It  mat- 
ters not  whether  he  be  a  trustee,  a  lessee,  or  a  mere  intruder 
into  the  franchise  of  the  corporation.3  The  only  exception  in 
favor  of  a  receiver,  or  distinction  between  them  or  any  other 
trustee,  is,  that  he  is  an  officer  of  the  court  appointing  him,  and 
is  under  its  control  and  protection.4 

Receivers  in  chancery  in  operating  and  managing  railroads  are 
thus  regarded  as  sustaining  to  persons  dealing  with  them  the  char- 
acter of  common  carriers.  They  may  at  all  times  invoke  the  aid 
of  the  court  appointing  them  in  any  matter  affecting  their  duty 
or  liability  under  their  receivership;  yet,  waiving  this,  they  are 
amenable  in  the  common  law  courts  to  actions  for  negligence  as 
carriers.6     This  liability  is  extended  to  losses  or  damages  to  prop- 

1  Blnmenthal  <•.  Brainerd,  38  Vt.  402.  *  Camp  v.  Barney,  supra, 

~  Per   Kellogg,  .J.,   in    Blumenthal    v.  6  Newell   v.  Smith,  49  Vt.  2:>:> ;  Cutts 

Brainerd,  supra.  v,  Brainerd,  42  Vt 

3  Bpragoe  v.  Smith,  29  Vt.  421.  i,  () 


§  511.]  THE   RIGHTS    AND   LIABILITIES    0*    A    RECEIVER. 

erty  taken  charge  of  by  such  receivers,  although  happening  after 
the  property  has  passed  over  their  own  road,  and  while  in  the 
charge  of  other  carriers  over  whose  line  of  road  the  property  was 
destined  and  directed.1 

511.  According  to  another  view  a  receiver  as  the  agent  of 
the  court  occupies  a  position  analogous  to  that  of  a  public 
officer  who  is  not  answerable  for  the  acts  of  those  under  him. 
The  Court  of  Appeals  of  New  York,  in  a  recent  case,2  held  that 
a  receiver  operating  a  road  in  his  official  capacity  is  not  liable  in 
an  action  for  negligence  causing  the  death  of  a  passenger,  where 
no  personal  neglect  is  imputed  to  him,  either  in  the  selection  of 
agents  or  in  the  performance  of  any  duty,  but  where  the  negli- 
gence charged  is  that  of  a  subordinate  whom  he  necessarily  and 
properly  employed  in  compliance  with  the  order  of  the  court. 
It  is  conceded  that  trustees  and  mortgagees  in  possession  of  roads, 
and  operating  them  for  the  benefit  of  the  bondholders,  are  liable 
for  injuries  sustained  by  reason  of  the  negligence  of  persons  em- 
ployed by  them.3  They  are  regarded  as  the  owners  of  the  roads, 
and  the  real  principals,  receiving  the  earnings,  and  having  the 
benefit  of  the  services  of  the  employees,  and  the  fact  that  they 
act  in  a  representative  capacity  is  unimportant.  The  employees 
are  their  servants,  and  whether  they  operate  the  road  as  mort- 
gagees in  possession,  trustees,  or  lessees,  is  not  material,  so  long 
as  they  take  the  earnings  for  themselves  or  for  those  they  repre- 
sent.4 But  there  is  no  principle  upon  which  a  receiver  or  other 
officer  of  a  court,  merely  obeying  the  orders  of  the  court,  hav- 
ing no  interest  in  the  prosecution  of  the  work,  and  deriving  no 
profit  from  it,  should  be  answerable  except  for  his  own  acts  and 
neglects. 

These  views  were  applied  by  the  Supreme  Court  of  New  York 
to  the  case  of  an  injury  received  by  the  plaintiff  upon  the  Ogdens- 
burgh  and  Lake  Champlain  Railroad,  a  New  York  corporation, 
but  leased  to  the  defendant  and  others  as  receivers  of  the  Ver- 

1  Morse  v.  Brainerd,  41  Vt.  550;  Cutts         4  Citing  and  distinguishing  upon   this 
v-  Brainerd,  supra ;  Newell  v.  Smith,  supra,  ground  Ballou  v.  Farnum,  9  Allen  (Mass.), 

2  Cardot  v.  Barney,  63  N.  Y.  281,  Chief  47  ;  Lamphear  v.  Buckingham,  33  Conn. 
Justice  Church  dissenting.  237  ;  Barter  v.  Wheeler,  49  N.  H.  9;  Rog- 

3  Rogers  »>.  Wheeler,  43  N.  Y.  602 ;  ers  v.  Wheeler,  43  N.  Y.  598 ;  Sprague 
S.  C.  2  Lans.  486;  Ballou  v.  Farnum,  9  v.  Smith,  29  Vt.  421. 

Allen  (Mass.),  47. 

490 


LIABILITY    TO   SUIT    FOR   NEGLIGENCE   OF   EMPLOYEES.       [§  512. 

mont  and  Canada  Railroad  Company,  a  Vermont  corporation, 
placed  in  their  bands  by  the  Court  of  Chancery  of  that  state.1 
The  receiver  was  held  not  to  be  liable,  because  in  making  the 
lease  he  acted  officially  and  as  the  agent  of  the  Vermont  cor- 
poration. 

512.  Upon  the  debated  question  of  a  receiver's  liability  as 
a  common  carrier,  it  would  seem  at  first  sight  that  the  weight  of 
authority  is  very  decidedly  in  favor  of  such  liability  ;  that  the 
courts  of  Vermont,  Massachusetts,  New  Jersey,  Ohio,  Wisconsin, 
and  Iowa  favor  this  view  of  the  law,  while  opposed  to  it  are  the 
courts  of  New  York  alone.  But  it  is  to  be  observed  that  in  all 
the  several  Vermont  cases  the  defendants  were  receivers  of  the 
same  railroads,  the  Vermont  Central  and  Vermont  and  Canada  ; 
that  in  several  of  the  cases  they  are  described  not  merely  as  re- 
ceivers, but  as  trustees  ;  and  that  ultimately  the  Supreme  Court 
of  that  state  has  decided  that  the  persons  who  have  been  in  pos- 
session of  these  railroads  for  sixteen  years  and  more  were  not  in 
possession  as  receivers  of  the  Court  of  Chancery,  but  as  trustees 
for  the  bondholders  ; 2  and  there  is  no  doubt  that  trustees  oper- 
ating a  railroad  are  liable  as  common  carriers  in  the  same  way 
that  the  railroad  company  itself  would  be  liable.  The  Massachu- 
setts case  was  an  action  against  the  trustees  or  receivers  of  the 
same  railroad,  and  expressly  followed  the  case  of  Blumenthal  v. 
Brainerd,  without  affirming  its  soundness,  upon  the  ground  that 
it  was  impossible  to  accord  to  the  defendants  in  Massachusetts  an 
exemption  from  the  ordinary  common  law  liabilities  of  common 
carriers  more  extensive  than  they  are  allowed  in  the  state  in 
which  they  were  appointed  receivers,  and  in  which  the  accident 
occurred.8     In  the  Ohio  case,4  the  receiver  was  appointed  under 

!  Kain  v.  Smith,  1 1  I  Inn,  552.  Learned,  lie  receives  the  earnings,  to  be  disposed  of* 

P.   J.,  dissenting,   said  :  "  Whatever  may  as  he  directs,  lie  is,  as  it   seem-;  to  mc,  the 

he  the  defendant's  liability  in  respect  to  owner  and   proprietor,  during    the   time 

the  management,  in  Vermont,  of  the  road  agreed  upon,  of    the  property,  and   the 

of  which    he  is  supposed  to  be  receiver,  master  of  the  persons  employed  by  him 

when  he  comes  into  this  Mute  and  obtains  in  performing  the  duties  thus  assumed." 

completi  control  of  a  railroad,  not  by  \ir-  -  Vermont  &  Canada  K.  R.  Co.  v,  Ver- 

tue  of  his  appointment  as  receiver,  but  by  mont  Central  K.  li.  Co.  50  Vt.  500. 

a  contract    which   he  voluntarily  made;  3  Paige  t>.  Smith,  99  Mass.  395. 

when  he  taki                on  of  this  railroad,  4  Meara  v.  Holbrook,  20  Ohio  St.  187, 

Mine   the  duties  of  the  citing  and   relying   npon    Blumenthal  v. 

company  as  a  common  carrier,  and  when  Braincrd,  sujira,  and  Paige  V.  Smith,  supra, 

491 


§  512.]  THE   RIGHTS    AND   LIABILITIES    OF   A   RECEIVER. 

the  express  authority  of  a  statute  which  conferred  upon  him,  with 
other  powers,  that  of  bringing  and  defending  suits  "  in  his  own 
name,  as  receiver,"  and  the  suit  was  brought  against  him  in  his 
official  capacity.  In  Kinney  v.  Crocker,1  the  Supreme  Court  of 
Wisconsin  assumed  the  liability  of  a  receiver  for  the  negligence  of 
his  employees,  but  did  not  discuss  this  question,  —  the  principal 
question  considered  being  whether  a  state  court  could  take  juris- 
diction of  the  action  without  leave  of  the  federal  court  which  had 
appointed  the  receiver.  In  Allen  v.  Central  Railroad  Company,2 
the  negligence  complained  of  occurred  before  the  receiver  had  as- 
sumed control  of  the  road,  and  the  suit  was  not  against  the  re- 
ceiver but  against  the  company.  The  decision  in  Klein  v.  Jewett  3 
was  by  the  Vice  Chancellor  of  New  Jersey,  who,  while  relying 
upon  the  authority  of  the  cases  above  mentioned,  strongly  main 
tains  the  liability  of  the  receiver  upon  principle. 

In  conclusion  it  seems  proper  to  remark  that  on  principle  the 
case  of  Cardot  v.  Barney 4  is  sound  ;  that  the  doctrine  of  re- 
spondeat siqierior,  as  between  a  receiver  acting  under  the  direction 
of  a  Court  of  Chancery  and  his  employees,  has  no  application. 
But  considerations  of  policy  may  very  likely  lead  to  the  adoption 
of  the  rule,  that  a  receiver  shall  not  be  allowed  to  exercise  the 
rights  and  powers  of  a  common  carrier  without  also  being  held 
subject  to  a  common  carrier's  duties  and  liabilities. 

Under  a  statute  of  the  State  of  Georgia,  allowing  an  employee 
of  a  railway  company  to  recover  damages  against  the  road  for  a 
personal  injury  done  him  through  the  negligence  of  another  em- 
ployee in  the  same  service,  it  was  held  that  the  employee  of  a 
receiver  is  not  an  employee  of  a  railroad  company  within  the 
terms  of  that  statute,  so  as  to  make  the  receiver  liable  to  action  in 
such  case.5 

But  even  if  it  be  regarded  as  an  open  question  whether  the  re- 
ceiver of  a  railroad,  appointed  by  a  court  and  operating  the  road 
under  its  direction,  is  liable  for  injuries  done  upon  the  road  to 
person  or  property,  it  is  regarded  as  certain  that  a  receiver  ap- 
pointed hy  the  governor  of  the  state,  under  a  law  providing  for 
such  appointment,  is  a  public  agent,  and,  as  such,  is  not  liable  for 

1  18  Wis.  80.     See  §  507.  5  Henderson  v.   Walker,   55    Ga.   481; 

2  42  Iowa,  683.  Thurman  v.   Cherokee  R.  R.  Co.  56  Ga. 

3  26  N.  J.  Eq.  474.  376. 

4  63  If.  Y.  281. 

492 


LIABILITY"    TO    SUIT    FOR   NEGLIGENCE    OF   EMPLOYEES.       [§§  513,  514. 

the  wrongs  or  negligence  of  his  employees,  but  onty  for  his  own 
wrongful  acts  or  delinquencies.1 

513.  A  receiver  is  not  personally  liable  for  injuries  done 
through  the  neglect  or  misconduct  of  those  employed  by  him 
in  the  performance  of  the  duties  of  his  office.2  He  is  only  liahle  in 
an  action  brought  against  him  as  receiver,  and  any  judgment  re- 
covered must  be  made  payable  out  of  the  fund  in  his  hands  as 
receiver.  He  is  not  individually  the  owner  of  the  property  in  his 
charge,  and  he  has  neither  a  general  nor  special  property  in  the 
road  or  its  earnings.  The  property  is  in  court  for  management 
and  administration,  and  the  receiver  is  an  officer  of  the  court, 
obeying  its  orders  and  carrying  out  its  directions.  It  would  be  a 
great  hardship  to  impose  upon  him  the  hazards  and  responsibili- 
ties which  attach  to  individuals  acting  by  agents  appointed  for 
their  own  convenience  and  profit.  The  receiver  of  a  railroad  must 
of  necessity  operate  the  road  through  the  employment  of  agents, 
and  when  he  has  prudently  selected  his  agents  he  has  discharged 
his  full  duty,  and  ought  not  to  be  held  to  guarantee  the  acts  of 
the  agents  employed.  While  there  is  good  reason  that  one  em- 
ploying another  in  his  business  should  be  responsible  for  his  acts, 
there  is  no  principle  upon  which  a  receiver  or  other  officer  of  a 
court  should  be  answerable  except  for  his  own  neglect  and  mis- 
conduct. Where,  therefore,  a  suit  was  brought,  and  a  judgment 
entered  against  a  receiver  personally,  upon  appeal  the  record  and 
proceeding  were  ordered  to  be  modified  so  as  to  make  the  judg- 
ment stand  against  him  as  receiver  only.3  But  as  will  presently 
be  noticed,  a  judgment  against  a  receiver  for  damages  occasioned 
through  the  negligence  of  his  employees  cannot  be  enforced  as 
against  the  assets  in  his  hands  in  preference  to  the  claims  of  mort- 
gage bondholders.4 

514.  Receivers  who  have  wilfully  and  corruptly  exceeded 
their  power  are  liable  for  the  actual  damage  sustained  by 
reason  of  their  misconduct,  bul  for  nothing  more.     Where,  for  iu- 

1  Ei-win  v.  Davenport,  9  Ileisk.  (Tenn.)  per  Mullin,  I'.  J.;  Cardol  v.  Barney,  63 
44;  Hopkins  v.  Connell,  2  Tenn.  Ch.  323,     N".  Y.  281. 

citing  Mersey   Duck?,'  Trustees  v.  Gibbs,        :;  Camp  v.  Barney,  supra. 
L.  B.  I  II.  L.  93.  *  See  §  515. 

2  Camp  v.  Barncv,  4  Ilun  (N.  Y.),  373, 

198 


§  515.]  THE   RIGHTS    AND    LIABILITIES    OF    A   RECEIVER. 

stance,  they  have  been  authorized  to  issue  certificates  of  indebted- 
ness payable  in  ten  years  at  eight  per  cent,  interest,  under  the  re- 
striction that  they  should  no't  sell  them  for  less  than  ninety  cents 
on  the  dollar,  and  they  hypothecated  them  for  a  half  or  a  third  of 
their  value,  the  court  held  that  they  were  not  chargeable  in  their 
account  for  the  full  value  of  the  certificates  so  hypothecated,  or 
even  with  their  value  at  ninety  cents  on  the  dollar  ;  for  the 
lenders  were  bound  to  take  notice  of  the  terms  upon  which  the 
certificates  were  authorized,  and  were  bound  to  return  so  many  of 
them  as  were  not  necessary  to  secure  the  amounts  advanced.  The 
actual  damage  sustained  by  the  conduct  of  the  receivers  would 
therefore  be  merely  nominal.  If  they  acted  in  good  faith,  but 
under  a  mistaken  view  of  their  powers,  they  would  perhaps  not 
be  liable  at  all.1 

515.  A  judgment  for  negligence  cannot  be  enforced  as 
against  rights  of  mortgagees.  —  Under  another  view  of  the  sub- 
ject, although  a  judgment  may  be  obtained  against  a  receiver  for 
negligence,  on  the  part  of  employees,  yet  the  judgment  cannot 
be  enforced  as  against  mortgagees.  The  appointment  of  a  re- 
ceiver does  not  derange  the  priority  of  existing  liens  upon  the 
property,  or  in  any  way  impair  or  postpone  them,  except  so  far  as 
the  court  may  find  it  necessary,  for  the  preservation  of  the  prop- 
erty, to  authorize  the  borrowing  of  money  upon  a  pledge  of  it.'2 
Consequently,  it  has  been  held  that  a  person  who  has  recovered  a 
judgment  against  the  receivers  of  a  road,  for  injuries  received  by 
him  while  travelling  upon  the  road  under  their  management,  is  not 
entitled  to  payment  out  of  the  earnings  of  the  road,  or  out  of  the 
proceeds  of  a  sale  of  it,  in  preference  to  the  mortgage  creditors. 
"  It  is  too  clear  for  argument,"  says  Judge  Woods,3  "  that,  if  the 
road  had  been  run  by  the  president  and  directors  when  the  injury 
was  sustained,  no  such  claim  could  have  priority.  The  party 
would  have  travelled  over  the  road,  taking  the  risk  of  the  ability 
of  the  company  to  respond,  just  as  every  man  who  obtains  a  right 
or  contract  does  so  with  the  risk  of  the  ability  of  the  party  to 
answer  to  him.     The  receivers  of  the  court  were  merely  appointed 

1  Stanton  v.  Ala.  &  Chattanooga  R.  R.  3  Davenport  v.  Alabama  &  Chattanooga 
Co.  2  Woods,  506.  R.  R.  Co.  2  Woods,  519. 

2  Norway  v.  Rowe,   19  Ves.  Jun.    144, 
153,  per  Lord  Eldon. 

494 


COMPANY   NOT   LIABLE   AFTER   RECEIVER  ASSUMES   CONTROL.       [§  516. 

to  act  instead  of  the  president  and  directors,  except  so  far  as  the 
orders  of  the  court  otherwise  direct,  and  the  liability  stands  on  the 
same  footing  as  if  it  had  been  created  by  the  president  and  direc- 
tors, unless  a  higher  right  can  be  assigned  to  it  under  the  orders  of 
the  court It  is  clear  that  such  a  lien  is  not  one  of  the  inci- 
dents to  running  a  road,  nor  was  its  creation  necessary  to  procure 
traffic  and  travel  ;  nothing  of  the  kind  is  intimated  in  the  applica- 
tion for  a  receiver,  and  no  such  view  or  idea  is  presented  in  the 

order The  exercise  of  power  by  a  court  to  displace  liens 

can  only  be  sustained  on  the  ground  of  actual  necessity,  and  surely 
there  can  be  no  necessity  to  append,  as  an  incident  to  running  a 
railroad,  a  lien  for  damages  that  displaces  existing  contracts.  The 
party  has  a  right  to  be  allowed  his  claim,  to  be  paid  from  an  ex- 
cess remaining.  He  has  the  same  right  against  the  property 
which  he  could  have  had  if  the  road  had  been  run  by  the  presi- 
dent and  directors  when  his  right  accrued,  and  none  other." 

IV.    The   Company   itself  is   not   liable    after   the   Receiver   has 

assumed  Control. 

516.  The  railroad  company  itself,  whose  property  is  in  the 
hands  of  a  receiver  is  not  ordinarily  liable  for  injuries  received 
through  the  acts  of  persons  under  his  control  or  through  the  run- 
ning of  the  road  under  his  charge.1  His  acts  are  not  the  acts  of 
the  corporation,  nor  is  his  possession  the  possession  of  the  corpora- 
tion. He  is  under  the  control  of  the  court  that  appointed  him,  and 
his  possession  is  the  possession  of  the  court.  It  would  be  a  severe 
rule,  and  one  founded  on  no  principle,  that  would  render  the  rail- 
road company  responsible  for  the  negligence  of  the  agent  of  the 
court  that  had  deprived  it  of  the  possession  of  the  road.  To  an 
action  against  the  company,  it  is  sufficient  to  answer  that  at  the 
time  the  injuries  were  inflicted  on  the  plaintiff  the  railroad,  with 
the  rolling  stock  and  all  the  company's  property,  was  in  the  actual 
control  of  a  receiver  duly  appointed.  It  is  not  necessary  that  the 
answer  should  set  forth  a  copy  of  the  order  appointing  the  re- 
ceiver.2 The  corporation  itself  cannot  be  held  liable  for  goods 
lost  or  not  delivered  under  a  contract  made  with  receivers  for 
their  transportation  and  safe  delivery  ;  the  road  being  in  the  hands 

1  Bell  v.  Indianapolis,  Cincinnati  &  La-        2  Boll  v.  Indianapolis,  Cincinnati  &  La- 
fayette B  R.  Co.  53  [nd.  r>7  ;  Ohio  &  Mis-     fayette  R.  R.  <''>■  supra. 
M».si|ipi  R.  R.  Co.  V.  Davis,  88  Ind.  553. 

495 


§§  517,  518.]       THE   RIGHTS   AND    LIABILITIES   OF   A   RECEIVER. 

of  receivers.  The  action  only  lies  against  the  receivers,  and  no 
personal  judgment  can  be  rendered  against  them,  but  only  one 
against  them  in  their  official  capacity.1 

517.  But  unless  the  possession  of  the  receiver  under  a  de- 
cree of  court  is  exclusive,  and  the  servants  of  the  road  are 
wholly  employed  and  controlled  by  him,  the  company  is  not  re- 
lieved from  liability  for  injuries  done  by  the  servants  employed  in 
working  the  road.  Where,  for  instance,  a  road  is  run  on  the  joint 
account  of  a  receiver  of  part  of  it,  and  of  a  lessee  of  the  remain- 
ing part,  the  company,  as  well  as  the  lessee,  is  liable  for  injuries 
committed  by  a  servant  employed  upon  the  road  upon  a  passen- 
ger, in  improperly  expelling  him  from  a  car,  especially  where  the 
company  has  allowed  tickets  to  be  issued  in  its  own  name,  in  the 
same  form  as  it  had  done  before  the  road  was  leased,  and  the  pas- 
senger apparently  having  no  reason  to  know  that  the  road  was  not 
still  under  the  company's  management.2 

It  is  not  necessary,  of  course,  to  obtain  authority  from  the  court 
which  has  appointed  a  receiver  of  a  railroad  to  commence  an  ac- 
tion against  the  company  itself.  Nor  is  such  consent  necessary  to 
continuing  a  suit  commenced  against  a  railroad  company  before 
the  appointment  of  the  receiver.  Such  appointment  has  not  the 
effect  to  abate,  bar,  or  continue  an  existing  suit  against  the 
company.  The  receiver  may  interpose,  however,  when  the  plain- 
tiff undertakes  to  interfere  with  the  property  by  enforcing  an  exe- 
cution.3 

518.  In  determining  the  question  whether  the  corporation 
is  liable  for  injuries  done  after  the  appointment  of  a  receiver, 
it  is  important  to  inquire  whether  the  receiver  has  at  the  time  of 
the  injury  entered  upon  the  discharge  of  his  duties  and  assumed 
control  of  the  road.  Thus  a  receiver  of  the  Central  Railroad  of 
Iowa  was  appointed  by  the  Circuit  Court  of  the  United  States 
on  the  seventh  day  of  January,  1875,  and  he  was  allowed  fifteen 
days  within  which  to  give  bonds.  In  a  suit  against  the  company 
for  an  injury  which  occurred  to  a  passenger  on  the  eighteenth  day 
of  the  same  month,  there  was  no  proof  that  the  receiver  had  at 

1  Ellis  v.  Indianapolis,  Cincinnati  &  2  Railroad  Co.  v.  Brown,  17  Wall.  445. 
Lafayette  R.  R.  Co.  6  Am.  Law  Record,  3  Toledo,  Wabash  &  Western  Ry.  Co. 
288.  v.  Beggs,  85  111.  80. 

496 


COMPANY   NOT    LIABLE   AFTER   RECEIVER   ASSUMES    CONTROL.       [§  520. 

that  time  assumed  control  of  the  road.  Upon  the  contrary,  there 
was  some  testimony  tending  to  show  that  the  defendant  company 
was  operating  the  road  at  that  time.  At  any  rate  the  Supreme 
Court  of  Iowa  did  not  consider  the  question  whether  a  railroad 
company  could  be  made  liable  for  damages  resulting  from  the  im- 
proper management  of  the  road  while  in  the  hands  of  a  receiver, 
involved  in  the  record  of  the  case.1 

519.  Liability  of  company  as  affected  by  statute.  —  Under  a 
statute  making  receivers  or  other  persons  running  or  controlling 
any  railroad  in  the  corporate  name  of  the  company  liable  jointly 
or  severally  with  such  company,  for  stock  killed  or  injured  by  the 
locomotive,  cars,  or  other  carriages  of  such  company,  an  action  may 
be  brought  against  the  company  alone  for  such  acts  done  while  a 
receiver  is  in  possession.  The  appointment  of  a  receiver  does  not 
destroy  the  corporate  existence.  Its  corporate  powers  and  fran- 
chises are  for  the  time  being,  so  far  as  necessary  for  the  operating 
of  the  road,  conferred  upon  the  receiver,  but  the  corporate  exist- 
ence is  left  intact.  Suits  may  be  prosecuted  against  the  corpora- 
tion after  the  decree  appointing  a  receiver,  just  as  well  as  before.2 

Where  negligence  on  the  part  of  those  operating  the  road  is  not 
an  element  that  is  at  all  essential  to  a  recovery,  as  for  instance 
where  a  statute  makes  a  railroad  liable  for  cattle  killed  upon  its 
track,  in  case  this  is  not  fenced,  a  railroad  company  has  been 
held  liable  for  stock  thus  killed,  although  the  road  is  at  the  time 
operated  by  a  receiver  duly  appointed  by  a  competent  court. 
Such  a  statute  is  regarded  as  in  the  nature  of  a  police  regulation, 
designed  to  promote  the  security  of  persons  and  property  passing 
upon  the  road  ;  and  not  only  the  terms  of  the  law,  but  the  reason 
of  it  as  well,  are  regarded  as  applicable  to  roads  operated  by  a 
receiver,  equally  with  those  operated  by  the  servants  of  the  com- 
pany.3 

520.  A  special  receiver  or  assignee  of  the  property  of  a 
railroad  corporation,  appointed  in  bankruptcy  proceedings, 
involuntary  on  its  part,  is  not  an  agent  or  servant  of  the  cor- 

i  Allen  v.  Centra]  R.  R.  Co.  42  Iowa,  8  McKinncy  V.  Ohio  &  Miss.  R.  R  <'<>. 
683  22   IikI.  99;   Ohio   ,<    Miss.    R.    R.   Co.  v. 

2  Louisvill.-,  New  Allmny  &  Chicago  R.      Fitch,  20  fad.  498. 

R.  Co.  v.  Canble,  -u;  fad.  277. 

32  -1«.I7 


§  520.]  THE   RIGHTS    AND   LIABILITIES   OF    A   RECEIVER. 

poration,  and  therefore  the  corporation  is  not  liable  for  damages 
occasioned  by  his  negligence  and  that  of  persons  employed  by 
him  in  operating  the  road.  In  a  suit  against  the  Buffalo,  Corry, 
and  Pittsburg  Railroad  Company,  it  appeared  that  the  accident, 
which  was  the  occasion  of  the  suit,  occurred  after  the  date  of  a 
sale  made  under  an  order  of  court  by  the  receiver  or  assignee, 
but  before  the  confirmation  of  the  sale  and  delivery  of  the  deed 
to  the  purchasers.  It  was  contended  in  behalf  of  the  plaintiff 
that  the  property  and  franchises  and  legal  entity  of  the  corpora- 
tion had  at  the  time  of  the  accident  passed  to  the  purchasers  who 
thereby  became  the  corporators  constituting  the  corporation,  tak- 
ing the  place  of  the  former  stockholders  ;  and  that  although  the 
sale  was  not  then  confirmed,  the  deed,  when  given,  related  back 
to  the  time  of  the  purchase.  The  Court  of  Appeals  of  New 
York  replied,  that,  conceding  this  to  be  so,  it  did  not  follow  that 
the  purchasers  were  responsible  for  the  negligence  in  operating 
the  road,  inasmuch  as  they  then  had  no  right  to  intermeddle 
with  the  road  and  had  not  in  fact  clone  so.1  The  persons  operat- 
ing the  road  were  not  employed  by  them,  nor  were  they  subject  in 
any  respect  to  their  control.  Neither  had  the  purchasers  taken 
the  place  of  the  preexisting  stockholders,  becoming  its  corpora- 
tors, and  acquiring  the  corporate  entity,  although  they  acquired 
the  property  and  the  franchise  of  using  it  subject  to  the  public  ob- 
ligations which  had  rested  upon  the  defendant  corporation.  The 
statute  authorizing  purchasers  under  a  foreclosure  sale2  to  organ- 
ize a  new  corporation  does  not  make  them  stockholders  in  the  ex- 
isting corporation  ;  were  this  so,  the  property  purchased  would 
be  liable  to  all  the  existing  debts  of  the  corporation,  and  both  the 
mortgage  security  and  the  rights  of  the  purchasers  might  thus  be 
entirely  defeated. 

Moreover,  the  defendant  corporation  in  this  case  had  been  de- 
prived, by  the  act  of  the  law,  of  the  possession  of  the  road  and 
of  all  control  over  those  engaged  in  operating  it ;  and  by  like  act, 
the  possession  and  control  had  been  given  to  others.  The  de- 
fendant had  nothing  to  do  with  operating  the  road.  The  fact 
that  the  profits  earned  became  assets  for   the  payment  of   the 

1  Metz  v.   Buffalo,  Corry  &  Pittsburg  Pa.  St.  506  ;  Wellsborough  &  Tioga  Plank 

R.  E.  Co.  58  N.  Y.  61  ;  and  see,  to  same  Road  Co.  v.  Griffin,  57  Pa.  St.  417. 

effect,  as  to  liability  of   purchasers,  Com-  2  Laws  1857,  ch.  444. 
monwealth  v.  Central  Passenger  Ry.  52 

498 


DISCHARGE    AND    REMOVAL.  [§  521. 

debts  of  the  corporation  did  not  make  it  liable  for  the  conduct 
of  those  who  were  in  no  sense  its  employees  or  servants. 

V.  Discharge  and  Removal  of  Receiver. 

521.  A  receiver  will  be  discharged  when  it  appears  that 
the  security  of  the  creditor  no  longer  requires  his  continu- 
ance. —  Upon  the  application  of  the  Milwaukee  and  Minnesota 
Railroad  Company  for  the  discharge  of  a  receiver  of  a  portion 
of  its  line  extending  from  Milwaukee  to  Portage,  it  appeared 
that  this  section  of  ninety-five  miles  constituted  a  link  in  an  im- 
portant route,  which  was  in  good  condition,  and  whose  gross  an- 
nual earnings  were  $800,000  ;  that  the  whole  mortgage  debt  upon 
this  was  $2,200,000,  upon  which  the  interest  was  wholly  paid ; 
and  the  company  proposed,  on  receiving  possession,  to  pay  to  the 
second  mortgagees,  at  whose  instance  the  receiver  was  appointed, 
$300,000  or  more.  Judge  Miller,  sitting  in  the  Circuit  Court, 
was  of  opinion  that  there  was  no  reason  why  the  receiver  should 
longer  retain  control  of  the  property,  especially  as  the  decree  in 
favor  of  the  mortgagee  would  stand  as  security  for  his  further 
claim,  on  which  he  could  have  an  order  of  sale  for  any  instalment 
of  interest.1 

In  the  same  case  a  judgment  creditor  whose  claim  was  less 
than  twenty  thousand  dollars  objected  to  the  discharge  of  the 
receiver;  but  the  judge  did  not  consider  the  objection  valid  in 
view  of  the  fact  that  this  creditor  had  all  the  ordinary  remedies 
for  enforcing  his  lien,  and  had  received  only  $1,000  for  four  years, 
during  which  the  receiver  had  been  in  possession. 

A  lessee  of  a  railroad  holding  the  lease  as  security  for  a  large 
debt,  from  whom  the  possession  was  taken  by  a  receiver  appointed 
at  the  instance  of  a  mortgagee,  upon  the  discharge  of  the  re- 
ceiver is  entitled  to  have  possession  restored  to  him.  Hut  a  cred- 
itor holding  such  lease,  who  has  failed  to  pay  sums  which  he  stipu- 
lated to  pay,  and  who  has  lost  possession  by  reason  of  such  failure, 
and  has  permitted  the  property  to  remain  out  of  his  possession  for 
four  years,  is  not,  entitled  to  have  the  possession  restored  to  him.2 
After  the  appointmenl  of  a  receiver,  upon  the  subsequent  pay- 

1  Howard  v  La  Crone  &  Milwaukee  R.        2  Howard  v.  La  Crosse  &  Milwaukee  It. 
R.  Co.  1  Woolworth,  49.     See, also,  Inre     It.  Co.  1  Woolworth,  49. 
Long  Branch  &  Seaside  R.  R.  Co.  24  N. 
J.  Bq.  398. 

I'J'.I 


§§  522,  523.]       THE   RIGHTS   AND    LIABILITIES    OF   A   RECEIVER. 

ment  of  a  part  of  the  debt,  the  security  being  ample  for  the  bal- 
ance of  the  debt,  and  the  decree  being  allowed  to  stand  as  a 
means  of  enforcing  the  mortgage  upon  a  subsequent  default,  the 
receiver  was  discharged.1 

In  New  York  it  is  provided  by  statute  2  that  neither  the  sale  of 
the  mortgaged  property  under  foreclosure,  nor  the  formation  of 
a  new  corporation  by  the  purchaser,  shall  interfere  with  the  au- 
thority or  possession  of  any  receiver  of  the  property  and  fran- 
chises aforesaid,  but  he  shall  remain  liable  to  be  removed  or  dis- 
charged at  such  time  as  the  court  may  deem  proper. 

522.  The  discharge  of  a  receiver,  like  his  appointment,  is 
ordinarily  a  matter  resting  wholly  within  the  discretion  of 
the  court  from  which  he  received  his  appointment,  and  of  course 
no  appeal  ordinarily  lies  from  the  order  to  the  appellate  court. 
But  this  is  not  always  and  absolutely  so.  Thus,  while  the  parties 
to  a  foreclosure  suit  are  litigating  the  amount  of  the  mortgage 
debt,  the  appointment  of  a  receiver  of  the  property,  and  his  dis- 
charge as  well,  belong  properly  to  the  discretion  of  the  court  in 
which  the  litigation  is  pending.  But  when  the  amount  due  has 
been  passed  upon  by  that  court,  and  upon  appeal  has  been  finally 
fixed  by  the  appellate  court,  the  right  of  the  mortgagor  to  pay 
that  sum,  and  have  a  restoration  of  his  property  by  a  discharge  of 
the  receiver,  is  clear,  and  does  not  depend  upon  the  discretion  of 
the  court.  It  is  a  right  which  the  party  can  claim ;  and  a  refusal 
of  the  court  to  grant  it  is  a  judicial  error  which  the  appellate 
court  is  bound  to  correct,  when  the  whole  case  is  fairly  before 
it.a 

523.  Upon  a  motion  to  vacate  an  order  previously  made 
appointing  a  receiver  he  should  not  be  heard  in  opposition, 
as  he  has  no  standing  in  court  for  such  purpose.  It  is  not  within 
his  province  to  intermeddle  in  questions  affecting  the  rights  of  the 
parties  in  interest,  or  the  disposition  of  the  property  in  his  hands, 
except  so  far  as  his  own  rights  are  concerned  in  the  adjustment 
of  his  accounts.  Where,  therefore,  all  the  parties  in  interest  con- 
curred in  the  vacating  of  the  receivership,  but  the  court,  upon  the 

1  Souter  v.  La  Crosse  &  Milwaukee  R.  8  Milwaukee  &  Minn.  R.  R.  Co.  v. 
R.  Co.  1  Woolworth,  49.  Soutter,  2  Wall  510. 

2  Laws  1876,  ch.  446,  p.  482. 

500 


DISCHARGE    AND    REMOVAL.  [§§  524,  525. 

objection  of  the  receiver  himself,  while  ordering  the  restoration  of 
the  railroad  and  its  appurtenances  to  the  company,  required  him 
still  to  receive  and  disburse  its  earnings  and  income,  the  order 
upon  appeal  was  adjudged  erroneous.  The  motion  should  have 
been  granted  so  as  to  fully  restore  the  possession,  management, 
and  control  of  the  road  to  the  owner,  including,  of  course,  the 
receipt  and  disbursement  of  its  earnings.1 

524.  The  rescission  of  an  order  appointing  a  receiver  after 
the  commencement  of  an  action  of  replevin  or  possessory 
■warrant  against  him  for  an  engine,  or  other  property,  does  not 
free  him  from  liability  upon  a  judgment  against  him,  although  he 
has  surrendered  the  property  to  the  railroad  company  of  which  he 
had  been  receiver  ;  for  when  the  suit  was  commenced  he  was  in 
possession  of  the  engine  as  the  receiver  of  the  company,  and  the 
plaintiff's  rights  against  him  were  fixed  as  of  that  time.  When 
he  voluntarily  turned  over  the  engine  to  the  possession  of  the 
company  while  the  suit  was  pending  against  him  for  the  posses- 
sion of  it,  he  did  so  at  his  own  peril.  The  company  could  not 
have  compelled  him  to  surrender  it  until  the  plaintiff's  claim  to 
the  possession  of  it  had  been  decided.2 

525.  Specific  complaints  against  a  receiver  of  maladminis- 
tration of  his  trust  will  receive  the  attention  of  the  court, 
although  brought  to  its  notice  in  an  irregular  way,  as  for  instance 
by  a  petition  under  an  order  for  leave  to  answer  in  the  name  of 
the  receiver  in  a  foreclosure  suit.3 

The  power  to  vacate  an  appointment  of  a  receiver  is  implied  in 
the  power  to  appoint.4  Like  the  power  of  appointing  a  receiver, 
the  power  to  remove  him  rests  in  the  discretion  of  the  court ;  but 
this  power  should  be  exercised  only  for  cause  grounded  in  some 
consideration  of  justice  or  convenience.  "  It  might  be  difficult," 
said  Van  Fleet,  V.  C,  in  a  case  before  the  Court  of  Chancery  of 
New  Jersey,6  "  if  not  impossible,  to  say  what  will  be  esteemed 
sufficient  cause  in  every  imaginable  case;  but  it  may  he  said  gen- 

i  L'Engle  v.  Florida  Cent.  It.  B.  (o.  u  8  Coc  v.  N.  J.  Midland  Ky.  Co.  28  N. 
Fla.  26G.  J.  Eq.  ::i  ;  S.  C.  i  i  Am.  Railw.  Rep.  9. 

2  Peacock  v.  Pittsburg  Locomotive  &  *  llailroini  Co.  v.  Sloan,  81  Ohio  St.  1. 
Car  Works,  52  Ga.  417.  ft  McCullough   v.    Merchants'  Loan   >< 

Trust  Co.  29  N.  J.  Eq.  217. 

501 


§  526.]  THE   EIGHTS   AND   LIABILITIES    OF   A   RECEIVER. 

erally,  if  the  receiver  was  an  officer  of  the  corporation  at  the  time 
it  became  insolvent,  and  it  appears  proper  that  his  conduct,  as 
such  officer,  should  be  investigated,  to  see  whether  he  has  not  ob- 
tained a  benefit  or  advantage,  which  in  equity  he  ought  not  to  be 
permitted  to  retain,  sufficient  cause  for  his  removal  exists." 

526.  It  is  ground  for  the  removal  of  two  receivers  of  a  rail- 
road that  they  have  become  hostile  to  each  other  in  the  man- 
agement of  the  road.  Two  receivers  of  the  Kansas  Pacific  Rail- 
way, who  had  been  appointed  at  the  instance  of  the  parties  in 
interest  for  the  purpose  of  representing  the  opposing  views  of  the 
parties,  having  disagreed  about  the  management  of  the  road,  were 
for  this,  in  connection  with  other  reasons,  removed.1  Among  the 
other  reasons  given  by  the  court  were  that  the  receivers  had  es- 
tablished separate  places  of  business  a  thousand  miles  apart,  and 
that  neither  of  them  was  within  two  hundred  miles  of  the  road 
whose  operations  they  controlled.  "  There  is  no  necessity,"  said 
Mr.  Justice  Miller,  "  and  a  manifest  impropriety,  in  having  a  re- 
ceiver located  in  New  York.  It  is  true  many  such  western  corpo- 
rations as  this  have  officers  in  New  York,  at  which  most  of  the 
financial  business  of  the  companies  is  transacted  ;  but  this  has 
always  been  felt  to  be  a  grievance  by  the  people  of  the  West, 
whose  business  the  road  does,  and  by  the  income  of  which  it  can 
live;  and  where  such  a  company  comes  under  the  control  of  a 
court  by  reason  of  its  insolvency,  and  a  receiver  is  appointed  to 
take  charge  of  it,  such  control  as  the  court  can  exercise  over  the 
operations  of  the  road,  and  in  collecting  and  disbursing  its  receipts, 
can  be  most  safely  and  wisely  exercised,  and  more  strictly,  under 
the  eye  of  the  court,  by  an  officer  residing  within  its  jurisdiction. 
I  think,  therefore,  on  general  principles,  and  on  the  facts  of  this 
case,  there  was  no  necessity  for  a  receiver  in  the  city  of  New  York. 
I  am  of  the  opinion  that  the  receivership  in  New  York  should  be 
abolished  in  the  interest  of  economy.  Its  expenses  are  unneces- 
sary, and,  as  administered,  excessive." 

But  the  controlling  consideration  with  the  court  in  this  case  was 
that  the  receivers  had  become  antagonistic,  so  that  they  repre- 
sented two  hostile  camps,  each  bent  upon  securing  the  whole  or 
the  larger  share  of  the  spoils.     It  therefore  became  the  duty  of 

i  Meier  v.  Kansas  Pacific  Ry.  Co.  U.  S.  Legal  News  (Oct.  26,  1878),  p.  41;  6 
Circuit  Court,  Dist.  of  Kansas,   Chicago     Reporter,  642. 

502 


COMPENSATION    AND   ACCOUNT.  [§  527. 

the  court  to  see  that  its  powers  are  exercised  on  principles  of  strict 
neutrality  as  regards  the  belligerents,  and  this  could  only  be  done 
by  removing  the  representatives  of  the  hostile  interests,  and  ap- 
pointing an  impartial  receiver  in  their  place. 

VI.   Compensation  and  Account  of  Receiver. 

527.  The  question  of  the  compensation  to  be  allowed  a  re- 
ceiver is  one  that  properly  belongs  to  the  master  to  whom  his 
accounts  are  referred,  and  not  to  the  court;  but,  of  course,  is  de- 
termined by  the  court  when  its  decision  is  desired  or  rendered 
necessary.  Want  of  foresight  in  the  receiver  of  a  railroad  in  re- 
gard to  the  future  developments  of  business  is  no  reason  for  de- 
nying him  compensation,  or  reducing  the  amount  of  it,  when  the 
trust  has  been  administered  with  reasonable  success,  and  with  in- 
tegrity and  good  faith.1 

When  the  accounts  of  a  receiver  have  been  referred  to  a  master 
for  examination  and  report,  no  exceptions  to  the  report  will  be 
considered  by  the  court  unless  they  have  first  been  made  before 
the  master.2  This  is  required  in  justice  both  to  the  master  and 
to  the  receiver.  To  the  master,  that  he  may  have  an  opportunity 
to  reconsider  his  decision  ;  to  the  receiver,  that  he  may  sustain  his 
account,  if  he  can,  by  additional  evidence,  or  make  such  explana- 
tion as  the  case  may  require.  This  rule  would  not  deter  the  court 
from  directing  an  account  to  be  reformed,  which  contains  manifest 
errors  or  plainly  improper  charges ;  but  such  errors  or  improper 
charges  ought  to  be  clearly  shown  to  exist,  and  their  character  as 
such  ought  to  be  evinced  by  the  proofs  in  the  case,  or  by  their  in- 
trinsic nature.3 

A  receiver  is  as  much  an  officer  of  court  as  a  master  is,  and 
when  under  an  order  of  court  he  states  his  own  account,  and  sub- 
mits it  to  the  master,  the  latter  acts  in  place  of  the  court  in  a  ju- 
dicial rather  than  a  ministerial  capacity.  Strictly  speaking,  ex- 
ceptions to  his  report  in  such  cases  do  not  properly  lie,  as  they  do 
to  an  account  stated  by  himself,  as  for  instance  when  he  states  the 
account  of  trustees  or  partners.  Nevertheless,  if  the  master  adopt 
any  erroneous  principle  in  allowing  a  receiver's  account,  the  court, 
on  petition  of  the  proper  parties,  will  refer  the  matter  bad;  to  him 

1    Cowdrey  v.  Railroad  Co.  l  Woods,        8  Per  Mr.  Justice  Bradley,  in  Cowdrej 
331.  v.  Knilroad  Co.  supra, 

a  Cowdrey  v.  Riiilrond    Co.  supra. 

603 


§§  528,  529.]       THE   RIGHTS   AND    LIABILITIES    OF    A    RECEIVER. 

for  correction.  The  duty  of  the  court,  therefore,  consists  in  re- 
viewing the  principles  and  rules  adopted  and  followed  by  the 
master  in  allowing  the  receiver's  accounts,  rather  than  in  exam- 
ining the  items  of  the  account  in  detail,  or  the  evidence  on  which 
those  items  are  severally  founded,  —  the  latter  duty  belonging 
more  especially  to  the  province  of  the  master  acting  in  his  judi- 
cial capacity,  analogous  to  the  province  and  duty  of  a  jury  on 
questions  of  fact.1 

528.  The  amount  of  compensation  allowed  to  a  receiver  is 
graduated  somewhat  by  his  duties,  and  somewhat  by  the  responsi- 
bilities of  the  situation.2  In  ordinary  receiverships  of  moderate 
amount,  five  per  cent,  on  the  receipts  and  disbursements  has  been 
allowed ;  but  where  the  amounts  received  and  disbursed  are  large, 
as  is  usually  the  case  where  the  property  is  a  railroad,  it  is  not 
the  practice  to  allow  a  percentage,  but  to  fix  the  compensation  in 
some  other  manner.  The  receiver  of  a  railroad  is  a  manager  as 
well  as  a  receiver ;  and  the  business  of  a  railroad  is  one  of  the 
most  difficult  and  responsible  duties  that  a  receiver  is  charged 
with.  The  peculiar  duties,  responsibilities,  and  accountability  of 
a  receiver  entitle  him  to  a  larger  amount  than  would  be  demanded 
by  the  president  or  head  officer  of  the  same  railroad.  In  the 
matter  of  the  receivership  of  the  Galveston  Railroad  Company,  Mr. 
Justice  Bradley  allowed  the  receiver  the  sum  of  $10,000  per  an- 
num .in  coin,  although  the  previous  salaries  given  by  the  com- 
pany to  the  president  of  the  road  had  not  exceeded  $5,000.3 

529.  A  receiver's  expenses  for  counsel  and  witness  fees,  in- 
curred in  resisting  a  motion  for  his  removal,  were  allowed  as  a 
charge  against  the  trust  fund,  in  a  case  where  it  appeared  that  he 
had  acted  in  good  faith  and  with  integrity  of  purpose,  although  it 
also  appeared  that  there  were  apparent  grounds  for  the  motion.4 
The  receiver's  accounts  in  this  case  had  been  referred  to  two  dif- 
ferent masters,  who  found  such  confusion  and  vagueness  in  them 
that  no  satisfactory  conclusion  could  be  formed  as  to  the  condition 

1  Cowdrey  v.  Railroad  Co.  1   Woods,  v.  Keen,  115  Mass.  170;    Corey  v.  Long, 
331,  per  Bradley,  J.  12  Abb.  (N.  Y.)  Pr.  N.  S.  427. 

2  Bank  Comm'rs  v.  Franklin  Inst,  for  8  Cowdrey  v.  Railroad  Co.    1    Woods, 
Savings,    11    R.   I.    557;    McArthur    v.  331. 

Montclair  Ry.  Co.  27  N.  J.  Eq.  77  ;  Jones         *  Cowdrey  v.  Railroad  Co.  snpra. 

604 


COMPENSATION   AND    ACCOUNT.  [§  529. 

of  the  trust,  or  as  to  the  state  of  accounts  with  another  railroad 
company.     After  repeated  complaints  one  of  the  masters  refused 
to  pass  the  receiver's  account  until  they  were  rendered  in  a  form 
calculated  to  give  the  information  desired.     After  this  was  done  a 
more  satisfactory  exhibit  was  made,  but  this  was  after  the  applica- 
tion for  removal  had  been  made.     "  I  cannot  say  that  the  demands 
of  the  defendants  for  a  more  specific  statement  of  the  accounts  were 
unreasonable  ;  nor  that  the  difficulties  which  were  experienced  in 
getting  at  an  explanation  of  the  various  items  were  not  calculated, 
in  connection  with  other  things,  to  raise  suspicion  as  to  the  faith- 
ful management  of  the  receivership.     I  think  that  these  circum- 
stances are  sufficient  to  exonerate  the  defendants  from  the  burden 
of  paying  the  costs  and  expenses  incurred  by  the  receiver.     Are 
they  sufficient  to  cast  the  burden  on  the  receiver  himself  ?     If  the 
receiver  acted  in  good  faith,  and  was  ever  ready,  as  far  as  he  was 
able,  to  make  any  explanations  that  were  personally  required,  but 
was  unskilful  in  the  manner  of  keeping  his  accounts,  he  ought  not 
for  that  cause  to  be  visited  with  a  penalty.     It  is  not  every  good 
business  man,  or    engineer,  or  superintendent,  that  understands 
book-keeping.     It  requires  a  peculiar  aptitude  to  state  and  keep 
accounts  with  clearness  and  accuracy,  especially  where  the  trans- 
actions are  varied,  extensive,  and  complicated.     I  should  not  feel 
disposed,  therefore,  to  cast  the  burden  of  the  expenses  referred  to 
on  the  receiver   personally,  unless  satisfied   that   his  method   of 
keeping  his  accounts  was  adopted  for  the  purpose  of  producing 
confusion  and  covering  up  the  nature  of  his  transactions.     I  do 
not  see  any  sufficient  evidence  that  this  was  the  case.    On  the  con- 
trary, it  seems  to  have  been  the  endeavor  of  the  receiver  to  keep 
regular  books  and  a  constant  record  of  his  transactions  ;  and  for 
this  purpose  employed  competent  clerical  assistance.     But  the  in- 
trinsic difficulties  of  the  case  may  well  afford  some  excuse  for  a 
defective  exhibition  of  all  the  aspects  of  the  various  receipts  and 
expenditures.     If  I  were  satisfied  that  the  receiver  was  unfaithful 
to  his  trust,  and  did  not,  according  to  the  best  of  his  ability  and 
understanding,  perform  the  duties  thereof,  I  should  feel   that    I 
ought  to  cast    the  burden  of    these    expenses  on    him  ;    for  that 
would  have  furnished  good  ground  for  his  removal.     But  I  cannot 
say,  from  anything  which  has  l>''<'ii  developed  in  the  case,  that  he 
has  not  acted  with  entire  integrity  of  purpose."  1 

1  JYr  Mr.  Justice  Bradley,  IB  Cowdruy  v.  Railroad  Co.  tupra. 

505 


§  530.]  THE   RIGHTS   AND   LIABILITIES    OF   A   RECEIVER. 

A  receiver  of  a  railroad  was  not  allowed  to  charge  in  his 
account  payments  for  advertising  the  accommodations  of  the 
road,  when  the  advertisement  contained  a  favorable  reference  to  a 
firm  of  which  he  was  a  member,  as  proper  persons  to  facilitate  the 
forwarding  of  freight,  and  had  for  its  object,  in  whole  or  in  part, 
the  promotion  of  the  interests  of  that  firm.1 

530.  A  receiver  may  appeal  from  a  decree  directing  him  to 
pay  into  court  a  certain  sum  as  the  balance  due  from  him  on 
the  settlement  of  his  accounts.2  In  taking  such  appeal  he  does 
not  attempt  to  appeal  from  the  decree  of  foreclosure,  or  from  any 
order  or  decree  of  court,  except  such  as  relates  to  the  settlement 
of  his  accounts.  "  To  that  extent,"  says  Mr.  Chief  Justice  Waite, 
of  the  Supreme  Court  of  the  United  States,  "  he  has  been  sub- 
jected to  the  jurisdiction  of  the  court,  and  made  liable  to  its 
orders  and  decrees.  He  has,  therefore,  the  corresponding  right  to 
contend  against  all  claims  made  against  him.  For  this  purpose  he 
occupies  the  position  of  a  party  to  the  suit,  although  an  officer  of 
the  court,  and  after  the  final  decree  below  has  the  right  to  his 
appeal  here." 

1  Cowdrey  v.  Railroad  Co.  1  Woods,  2  Hinckley  v.  Gilman,  Clinton  &  Spring- 
331.  field  R.  R.  Co.  94  U.  S.  467. 

506 


CHAPTER  XVII. 


receivers'  debts  and  certificates. 


I.  For  what  purposes  receivers  maybe  au- 
thorized to  incur  debts  and  issue  certifi- 
cates, 533-538. 


II.  Priority  of  receivers'  certificates,  539- 
544. 

III.  Negotiability  of  receivers'  certificates, 
545,  546. 


I.  For  ivhat  Purposes  Receivers  may  be  authorized  to  incur  Debts 
and  issue  Certificates. 

In  the  enforcement  of  railroad  mortgages  there  is  frequent  oc- 
casion to  invoke  the  aid  of  courts  of  equity  to  take  possession  of 
the  property  for  its  preservation.  As  shown  in  the  preceding 
chapters,  this  is  done  through  the  agency  of  receivers.  It  may  be 
necessary  for  receivers,  in  the  proper  management  of  the  prop- 
erty, to  use  money  beyond  the  current  income  of  it ;  and  it  is 
usual  for  the  courts  to  authorize  receivers,  for  specific  purposes, 
to  negotiate  loans  upon  the  credit  of  the  property.  This  author- 
ity of  the  courts,  when  properly  exercised,  is  highly  beneficial  to 
the  mortgage  bondholders.  What  are  the  proper  occasions  for 
the  exercise  of  this  power  is  the  first  subject  for  consideration. 

533.  General  principles.  —  Under  the  common  law  rules  a 
mortgagee  in  possession  has  authority  to  make  necessary  and 
reasonable  repairs,  and  to  protect  the  title  from  other  incum- 
brances. He  has,  however,  no  right  to  make  the  estate  better  by 
expenditures  for  convenience  or  ornament.  He  has  no  right  to 
lay  out  money  in  ways  not  essential  to  the  preservation  of  the 
property,  although  lie  may  think  that  the  value  of  it  will  thus 
be  increased.  This  would  Ik-  improving  a  mortgagor  out  of  his 
estate.1 

This  principle  <>f  tin-  general  law  of  mortgages  governs  courts 
and  receivers  in  the  management  of  railroad  property,  pending 

1  Sancton  v.  Hooper,  6  IJeav.  246  j  '2.  Junes  on  Biortg.  §  1186. 

607 


§  533.]  receivers'  debts  and  certificates. 

litigation  respecting  it.  A  receiver  is  generally  appointed  at  the 
instance  of  a  mortgagee,  and  the  receiver's  possession  is  only  a 
substitute  for  the  possession  of  the  mortgagee.  As  against  the 
mortgagor,  the  same  rules  govern  as  to  the  expenditures  a  re- 
ceiver may  make  and  charge  upon  the  property  that  govern  when 
a  mortgagee  is  himself  in  possession.  A  receiver  has  no  greater 
right  than  a  mortgagee  to  improve  the  mortgagor  out  of  his  es- 
tate. It  does  not  alter  the  rule  in  this  respect,  that  generally 
when  the  affairs  of  a  railroad  company  become  so  embarrassed 
that  the  mortgagee  is  obliged  to  assume  possession  of  the  road, 
either  directly  or  through  the  intervention  of  a  receiver,  in  order 
to  protect  the  mortgage  title  and  interest,  the  company  itself 
practically  ceases  to  have  any  interest  in  the  road,  and  rarely  is 
able  to  redeem.  The  right  of  redemption  remains  until  finally 
barred  by  foreclosure  proceedings,  and  must  be  protected,  though 
it  be  seldom  or  never  exercised. 

Complaint  as  to  the  management  of  railroad  receivers  has  gen- 
erally come,  not  from  the  stockholders  of  the  corporation,  because 
it  is  seldom  they  care  to  redeem,  but  from  mortgage  bondholders  ; 
and  as  often,  perhaps,  from  those  at  whose  solicitation  the  re- 
ceiver was  appointed  as  from  others  who  may  hold  under  junior 
mortgages,  and  who,  therefore,  have  a  right  to  redeem.  The  his- 
tory of  such  management  in  this  country  shows  that  the  bond- 
holders chiefly  interested  have  sometimes  found  themselves  im- 
proved out  of  their  interest  in  the  property.  The  management 
of  mortgage  trustees  in  possession  has  sometimes  been  open  to  the 
same  criticism  ;  but  in  such  case  the  remedy  is  more  completely 
in  the  hands  of  the  bondholders  themselves.1 

The  power,  therefore,  of  a  Court  of  Chancery  to  authorize  a  re- 
ceiver to  create  liens  upon  a  railroad  should,  upon  principle,  be 
limited  to  cases  in  which  the  creation  of  such  liens  is  indispensa- 
ble to  the  preservation  of  the  property  pending  litigation.2     The 

1  Judge  Baxter  is  reported  to  have  ex-  were  not  sufficient  to  pay  the  certificates, 

pressed  himself  strongly,  in  a  recent  case  In  another  case,  in  Detroit,  a  road  cost 

before    the  Circuit   Court  of  the  United  over  $8,000,000.     When  the  road  came  to 

States,   against    the   practice   of    placing  be   sold,    eminent   counsel    requested    the 

railroads  in  the  hands  of  receivers.     He  judge  to  fix   the  minimum  price  for  the 

cited   the  case  of   a  railroad    in   Georgia  sale,  suggesting  that  such  price  should  be 

which  cost  $15,000,000.    The  receiver,  who  a  sum   sufficient  to  cover  the  charges  of 

was  in  charge  for  three  years,  issued  cer-  the  receiver  and  his  counsel.     11   Chicago 

tificates    to  the  value   of  $1,500,000,   and  Legal  News,  8. 

when    the    road   was    sold    the   proceeds  2  Meyer  v.  Johnston,  53  Ala.  237. 

508 


FOR   WHAT    PURPOSES   RECEIVERS   MAY   INCUR   DEBTS.       [§  534. 

nature  of  railroad  property  is  such,  however,  that  a  liberal  con- 
struction must  be  given  to  the  power  to  authorize  repairs  ;  for  a 
railroad  already  in  operation  must  be  kept  in  operation,  so  that 
it  may  be  sold  as  a  going  concern,  else  the  property  itself  would 
seriously  deteriorate  in  value,  and  its  business  would  be  lost.  In 
analogy  to  the  right  of  a  mortgagee  in  possession  to  supply  things 
necessary  to  put  a  house  upon  the  estate  in  a  condition  to  be 
rented,  or  to  be  occupied,  the  receiver  of  a  railroad  may  supply  it 
with  rolling  stock,  or  with  other  things  essential  to  the  operating 
of  the  road. 

534.  For  what  purposes  a  receiver  may  be  authorized  to 
borrow  money  and  create  liens  therefor  upon  the  property  in 
his  charge.  —  The   legitimate  object  of  a  court  of  equity  in  the 
assumption  of  the  management  of  a  railroad  being  the  preserva- 
tion of  the  property,  and  the  enforcement  of  the  right  of  creditors 
and  others  interested  in  it,  the  power  of  the  court  over  the  prop- 
erty should  be   limited  to   preserving  the   property  as  it  is,  and 
there  is  no  principle  of  law  or  of  public  policy  which  will  justify 
a  court  in  engaging  in  the  completion  of  unfinished  roads,  and  in 
authorizing  the  expenditure  of   large  sums  of  money  for  this  pur- 
pose, except  with  the  consent  of  the   mortgage  creditors  whose 
interests  may  be  thereby  affected.     Such  a  course  is  open  to  the 
objections  that  the  liens  of  mortgage  creditors  are  thus,  without 
their  consent,  displaced  by  new  liens  ;  and  that,  in  engaging  in 
such  new  undertakings,  the  court  lays  aside  its  judicial  character 
and  functions.     The  whole  power  of  the  court,  when  exercised  to 
its  fullest  extent,  is  confined  to  making  necessary  repairs  and  pro- 
tecting the  property  as  it  isv     The  nature  of  the  property  being 
such  that,  to  prevent  serious  injury  and  depreciation  in  value,  the 
road  must  be  continued  in  operation  and  sold  as  a  going  concern, 
the  court  may  continue  the  running  of  trains  and  the  usual  busi- 
ness of  the  road.     For  the  economical  conservation  of  the  property 
in  this  way,  the  court  may,  perhaps,  under  some  circumstances, 
authorize  expenditures  for  rolling  stock,  and  for  other  things  es- 
sential to  the  operation  of  the  road;  and,  if  the  income  of  the  road 
is  insufficient  for  such  purpose,  may  provide  the  requisite  means 
by  creating  charges  upon  the  property.1 

This  equitable  power  may  be  exercised  nol  only  when  a  receiver 
1  Meyer  v.  Johnston,  53  Ala.  287,  346,  and  cases  cited. 

50y 


§  535.]  receivers'  debts  and  certificates. 

has  been  appointed  upon  the  application  of  a  mortgagee,  but  also 
when  the  appointment  has  been  made  under  proceedings  in  insol- 
vency instituted  against  a  railroad  company.  There  can  be  no 
doubt  of  the  duty  of  the  court  in  such  case  to  order  the  receiver 
to  keep  the  road  in  repair,  so  that  it  may  be  operated  with  safety 
to  the  public,  and  without  impairing  the  value  of  the  trust  estate  ; 
and  it  may  be  the  duty  of  the  court  to  provide  the  means  of 
making  such  repairs  by  a  pledge  of  the  property.  The  power  of 
the  court  to  act  in  such  case  does  not  depend  upon  the  statute, 
but  upon  the  general  equity  jurisdiction  of  the  court.1 

535.  To  preserve  the  road  as  a  whole,  and  to  prevent  loss 
or  depreciation,  it  may  be  necessary  to  rebuild,  or  even  to 
build  anew,  in  considerable  portions  of  it.  Thus,  where  it  was 
necessary  to  complete  a  road  before  a  certain  date,  in  order  to  se- 
cure a  land  grant,  which  was  a  very  material  part  of  the  security 
of  the  bondholders,  Judge  Dillon  authorized  a  receiver  to  borrow 
money,  and  complete  the  road  within  the  time  limited.  The  exi- 
gency of  the  case  demanded  an  unusual  exercise  of  power  for  the 
preservation  of  the  security.2  "  It  is  manifest,"  said  Judge  Dil- 
lon, "  that  unless  a  receiver  is  appointed,  no  further  work  will  be 
done  on  the  extension  lines,  and  that  the  land  grant,  which  is  the 
only  security  of  any  considerable  value  which  the  plaintiffs  and 
the  other  bondholders  have  for  their  large  advances,  will  lapse  and 
be  wholly  lost.  In  order  to  save  this  land  grant,  the  road  must 
be  completed  by  December  third  ensuing,  and  it  seems  to  me  that 
the  exigencies  of  the  case  are  such  as,  under  the  circumstances,  to 
warrant  the  court,  upon  the  application  of  the  parties  chiefly  in- 
terested, to  appoint  a  receiver  and  clothe  him  with  the  authority 
desired."  Both  the  opinion  of  the  court  and  the  order  made 
show  the  urgent  necessity  of  appointing  a  receiver  for  the  protec- 
tion and  preservation  of  the  security. 

1  Hoover    v.   Montclair   &   Greenwood  other  things  it  explicitly  states  that  "the 
Lake  Ry.  Co.  29  N.  J.  Eq.  4.  main  effect  of  this  order  is  to   insure   the 

2  Kennedy  v.  St.  Paul  &  Pacific  Pi.  R.  completion  of  said  roads  by  the  third  day 
Co.  2  Dill.  448.  In  this  case  a  sum  not  of  December  next,  and  the  receiver  is  in- 
exceeding  85,000,000  was  authorized.  See  structed  so  to  act,  under  the  limitations 
note  to  this  case  for  form  of  the  order  of  aforesaid,  as  to  see  that  this  object  shall 
court,  and  form  of  certificate  authorized  be  accomplished,  and  to  proceed  at  once, 
to  be  given  for  the  money  borrowed.  The  and  with  expedition."  2  Dill.  454. 
order  is  most  carefully  drawn.     Among 

510 


FOR   WHAT   PURPOSES   RECEIVERS   MAY    INCUR    DEBTS.       [§  535. 

The  Supreme  Court  of  the  United  States  in  a  recent  case  ap- 
proved of  receivers'  certificates  issued  for  the  completion  of  a 
canal,  in  aid  of  which  the  United  States  had  made  a  large  grant 
of  land  conditioned  upon  the  completion  of  the  canal  within  a 
fixed  time.1  "  Hence  there  was  a  necessity  for  making  the  order 
which  the  court  made,  —  a  necessity  attending  the  administration 
of  the  trust  which  the  court  had  undertaken.  The  order  was 
necessary  alike  for  the  lien  creditors  and  for  the  mortgagors."  2 

In  a  case  before  the  Supreme  Court  of  Iowa  it  appeared  that 
the  receiver  had  been  authorized  to  complete  and  build  all  the  un- 
constructed  portions  of  the  railroad  in  his  hands,  from  Clinton  to 
Iowa  City,  in  that  state,  and  to  that  end  to  borrow  such  sums  of 
money  as  might  be  necessary,  not  exceeding  eight  thousand  dol- 
lars per  mile  upon  the  whole  line  of  road,  completed  and  to  be 
completed,  and  to  make  the  same  a  first  lien  upon  the  property. 
The  propriety  of  constructing  portions  of  the  road  was  not,  how- 
ever, a  question  before  the  court.3 

Mr.  Justice  Bradley  appointed  receivers,  pending  a  foreclosure 
suit,  of  a  railroad  which  had  been  built  so  far  as  to  enable  trains 
to  run  over  the  road,  but  a  portion  of  which  had  been  built  in  a 
hasty  and  temporary  manner,  and  needed  to  be   completed  in   a 
substantial  way  in  order  to  insure  the  safety  of  the  trains  ;  and 
authorized  them  to  put  the  road  in  repair,  and  to  complete  any 
incomplete  portion  of  it,  to  procure  rolling  stock,  machinery,  and 
other  things  necessary  for  operating  the  road  to  the  best  advan- 
tage, and  save  and  preserve  it  for  the  benefit  of  the  mortgage 
bondholders.     They  were  authorized  to  borrow  money  for   these 
purposes,  and  make  the  payment  of  it  a  first  lien  upon  the  prop- 
erty.    The  order  for  the  borrowing  of  this  money  was  asked  for 
by  the  mortgagees  themselves ;  and  consequently  they  were  pre- 
cluded from  objecting  to  the  effect  of  what  they  had  asked  for 
and  consented  to.4 

The  necessity  of  the  expenditure  for  the  protection  of  t lie  prop- 
erty is  the  criterion  of  its  propriety.  Thus,  the  Circuit  Court  of 
the  United  States,  after  an  appeal  of  the  principal  cause  to  the 
Supreme  Court  of  the  United   States,  refused  to  authorize  a  re- 

i  Jerome  v.  McCarter,  94  U.  S.  7.34,  s  Bank  of  Montreal  v.  Chicago,  Clinton 
738  &,  Western  R.  R.  "  Cent  I-  J.  267. 

«  Per  Stron-,  J.,  in  Jerome  i'.  McCarter,       *  Stanton  <■.  Ala.  &  Chattanooga  R.  R. 

supra  Co.  1>  Woodfl,  506. 

.Ml 


§  536.]  receivers'  debts  and  certificates. 

ceiver  in  possession  of  the  property  to  make  any  radical  change 
in  the  condition  of  the  railroad  property,  such  as  purchasing  a 
bridge  across  Galveston  Bay,  or  building  or  contracting  to  use  a 
new  junction  road  through  the  city  of  Houston.1 

536.  The  case  of  the  Vermont  and  Canada  Railroad  Com- 
pany v.  The  Vermont  Central  Railroad  Company,2  which  will 
be  noticed  more  fully  in  the  next  chapter,  is  a  very  instructive 
one  in  relation  to  the  proper  functions  of  a  Court  of  Chancery  in 
the  management  of  a  railroad  through  a  receiver,  and  the  crea- 
tion through  him  of  liens  which  shall  override  previously  existing 
mortgages.  Mr.  Justice  Barrett,  upon  these  points,  said  :  "  It  is 
fundamental  that,  in  a  receivership  involving  and  requiring  the 
carrying  on  of  a  business,  in  order  to  meet  the  exigency  which 
caused  the  necessity  for  it,  and  made  it  the  duty  of  the  court  to 
create  and  maintain  it,  such  receivership  should  not  go  outside  of 
the  subject  and  purpose  of  it,  and  what  is  necessarily  incidental 
thereto.  Rent  in  arrear,  to  be  paid  by  the  earnings  of  the  two 
roads,  run  as  one,  was  the  purpose  of  the  receivership  of  1861 ; 
and  those  roads,  with  fixtures  and  equipments,  were  the  property 
in  the  hands  of  the  receivers,  to  be  used  by  them  in  making  the 
contemplated  earnings.  Of  course,  while  thus  in  their  hands,  the 
property  was  to  be  used  and  treated  upon  the  same  considerations 
as  would  properly  have  been  entertained  and  acted  on  by  the 
owners,  using  it  for  the  same  purpose,  namely,  legitimate  earn- 
ings. This  would  involve  the  condition  of  the  track,  the  depot 
accommodations,  the  equipments  for  service,  the  force  of  help 
to  be  employed,  and  the  relation  to  and  connection  with  other 
roads,  as  affecting  the  business  and  earnings  of  the  road  in  hand. 
While  the  current  use  of  the  property  looked  especially  to  the  re- 
alizing of  net  income,  the  property  itself  has  not,  for  that  reason, 
to  be  subjected  to  deterioration  and  waste ;  but  it  should  be  kept 

1  Cowdrey  v.  Railroad  Co.  1  Woods,  of  claims  to  be  adjudged  in  each  case,  and 
331.  so  great  are  the  difficulties  in  arranging 

2  Supreme  Court  of  Vt.  Oct.  30,  1877,  conBicting  rights  among  the  mortgagees 
14  Am.  Railw.  Rep.  497,  546,  552.  But  preparatory  to  a  sale  and  reorganization 
it  does  not  follow  that  a  long  continued  that  it  sometimes  happens,  in  spite  of  the 
receivership  is  not  sometimes  necessary,  earnest  efforts  of  the  court  to  hasten  the 
"  The  theory  is  that  our  possession  is  only  sale  by  foreclosure,  that  they  remain  in 
temporary,"  remarked  Judge  Drummoud,  the  custody  of  the  court  for  some  years." 
in  a  recent  case  in  the  Seventh  Circuit,  Secor  v.  Toledo,  Peoria  &  Warsaw  Ry. 
"but  there  is  generally  such  a  multitude  Co.  7  Biss.  513, 

512 


FOR   WHAT   PURPOSES   RECEIVERS   MAY   INCUR  DEBTS.      [§  537. 

in  proper  condition,  not  only  for  doing  the  current  business  dur- 
ing the  receivership,  but  for  continuing  to  do  it,  without  the  ne- 
cessity for  special  and  extraordinary  outlay  on  passing  back  to 
the  possession  and  use  of  the  owners.  But,  for  any  legitimate 
purpose,  the  receivership  could  not  be  extended  to  the  control 
and  maintaining  and  repairing  and  equipping  other  roads,  or  to 
the  building  or  buying  of  other  roads,  or  to  the  control  and  oper- 
ating of  lines  of  steamboats,  or  steamboats  in  the  line  of  other 
roads,  even  with  the  view  of  larger  earnings,  and  larger  net  in- 
come of  the  property  which  is  the  subject  of  the  receivership. 
....  It  is  fundamental  in  the  law  that  a  receivership  is  tempo- 
rary, —  to  serve  an  existing  exigency  of  a  temporary  nature  ; 
and,  when  that  is  done,  it  is  to  cease.  The  idea  that  a  court,  in 
virtue  of  its  prerogative  in  that  behalf,  is  to  take  upon  itself  the 
office  of  instituting  a  receivership  to  be  perpetual,  and  to  do  the 
duty  of  a  court  in  controlling,  directing,  and  enforcing  the  ad- 
ministration in  the  management  of  a  business,  for  the  profit  and 
emolument  of  the  parties  interested,  and  not  to  serve  a  present 
exigency,  rendering  it  necessary  in  order  to  prevent  a  failure  of 
legal  justice  and  right,  has  not  yet  been  propounded  in  any  book 
on  the  subject,  nor  entertained  and  acted  upon  in  any  case." 

537.  When  it  is  necessary  for  the  receiver  to  raise  money 
for  the  purpose  of  repairing  or  operating  a  railroad,  the  court 
may  authorize  him  to  issue  negotiable  certificates  of  indebt- 
edness, which  shall  constitute  a  first  lien  upon  the  property  or 
the  proceeds  of  it,  and  shall  be  redeemable  within  a  limited  time, 
or  when  the  property  is  sold  by  the  court.  The  issuing  of  such 
certificates  is  a  matter  of  hardly  less  importance  than  the  ap- 
pointment of  receivers,  and  should  not  be  authorized  except  after 
full  notice  to  the  parties  interested,  and  ample  opportunity  for 
them  to  be  heard.  The  receiver  should  make  a  detailed  state- 
ment of  the  sums  needed,  and  the  purposes  for  which  they  are 
needed,  and  clear  proof  should  be  adduced  of  the  correctness  of 
this  statement,  and  of  the  necessity  of  raising  the  money.  Such 
certificates  are  not  debts  of  the  company,  but  of  the  receivers, 
backed  by  the  pledged  faith  of  the  court  that  the  property  on 
which  they  are  made  a  charge  is  in  the  possession  <>t  the  court, 
and  that  it  will  provide  for  the  payment  <»f  such  certificates  he- 
fore  the  property  or  the  proceeds  of  it  shall  pass  out  «»f  its  0OH- 
33  518 


§  538.]  receivers'  debts  and  certificates. 

trol.     They  should,  therefore,  be  issued  with  the  utmost  circum- 
spection, and  never  in  excess  of  the  urgent  present  need.1 

538.  Such  certificates  may  be  issued  for  material  furnished 
or  for  labor  performed,  as  well  as  for  money  borrowed,  provided 
they  are  issued  for  an  adequate  consideration  received.  The  re- 
ceivers of  the  New  Jersey  Midland  Railway  Company,  upon  their 
appointment,  found  in  the  possession  of  the  company  several  loco- 
motive engines  and  tenders,  held  under  a  lease  from  the  makers, 
which  provided  that,  upon  the  payment  in  full  of  all  the  rent  re- 
served, the  property  should  belong  to  the  railway  company.  The 
receivers  requested  the  owners  of  the  engines  and  tenders  to  leave 
them  in  their  possession  for  the  use  of  the  road,  promising  to 
apply  to  the  court  for  authority  to  pay  the  rent  due  under  the 
lease,  and  on  the  faith  of  this  promise  the  owners  permitted  the 
property  to  remain  in  their  hands.  The  receivers  afterwards 
obtained  authority  to  issue  certain  certificates  of  indebtedness,  to 
be  used  for  the  purposes  of  their  trust,  among  which  was  the  pay- 
ment of  the  rent  which  had  become  due  upon  the  engines. 

The  receivers  offered  to  deliver  certificates  so  obtained  in  pay- 
ment for  the  rent,  and  the  offer  was  accepted.  They  were,  how- 
ever, notified  by  persons  interested  in  the  mortgage  bonds  of  the 
road  not  to  deliver  the  certificates,  because  the  property  was  not 
worth  the  amount  agreed  to  be  paid  for  it,  and  the  receivers  ac- 
cordingly refused  to  deliver  the  certificates.  An  application  was 
made  by  the  owners  of  the  engines  to  compel  the  receivers  to 
deliver  the  certificates  to  them,  but  the  chancellor  held  that  the 
receivers  were  not  bound  to  deliver  the  certificates  in  payment  of 
particular  items  of  expense,  the  propriety  of  the  payment  of  which 
was  not  before  the  court ;  but  they  were  authorized  by  the  court 
to  purchase  the  locomotives  and  tenders  at  their  true  value,  and 
to  pay  for  them  in  the  certificates ;  otherwise  the  owners  of  this 
rolling  stock,  having  the  power  at  any  time  to  take  the  property, 
might  do  so,  and  they  should  be  allowed  just  compensation  for 
the  use  of  it  since  it  had  been  in  the  hands  of  the  receivers.3 

i  Meyer  v.  Johnston,  53  Ala.  237,  346  ;  to  be  the  first  lien  upon  it,  and  on  the  net 

Hoover  v.  Montclair  &  Greenwood  Lake  receipts,  rents,  income,  and  profits  of  the 

Ry.  Co.  29  N.  J.  Eq.  4.     The  order  an-  railroad ;  the  net  receipts,  &c,  to  be  ap- 

thorizing  the  certificates  in  the  latter  case  plied  to  the  payment  thereof  before  recourse 

declared  them  to  be  a  debt  incurred  for  the  is  had  to  the  property  itself. 

benefit  and  protection  of  the  property,  and  8  Coe  v.  N.  J.  Midland  Ry.  Co.  27  N.  J. 

514  Eq.  37. 


PRIORITY    OF   CERTIFICATES.  [§  539. 


II.  Priority  of  Receivers'  Certificates. 

539.  The  question  of  the  priority  of  receivers*  certificates 
and  loans  over  existing  mortgage  liens  has  not  very  often  been 
a  matter  of  litigation  ;  because  in  almost  all  instances  in  which 
the  courts  have  authorized  receivers  to  borrow  money  and  make 
their  obligations  a  first  lien  upon  the  property,  the  mortgagees 
have  themselves  asked  for  the  orders  for  these  purposes  in  ad- 
vance,1 or  have  expressly  assented  to  the  making  of  them,  and,  of 
course,  they  are  in  such  cases  precluded  from  afterwards  claiming 
any  priority  over  the  lien  thus  created  for  the  purpose  of  pre- 
serving the  mortgaged  property.  But  it  is  claimed  that  courts  of 
equity  have  authority,  without  the  consent  of  mortgagees,  to  order 
receivers  to  borrow  money,  and  to  bind  the  property  in  their 
hands  for  the  payment  of  the  loans.  This  authority,  if  it  exists 
at  all,  is  not,  however,  altogether  discretionary ;  the  judicial  dis- 
cretion is  limited  by  settled  principles  of  equity.2  Aside  from 
any  consideration  of  the  mortgagor  and  others  having  the  right 
to  redeem,  against  whom  a  Court  of  Equity  has  power  analogous 
to  that  of  a  mortgagee  in  possession  to  incur  charges  for  the  pres- 
ervation and  repair  of  the  property  it  has  taken  possession  of 
through  its  receiver,  a  Court  of  Chancery  has  no  power  to  impair 
the  obligation  of  a  mortgage  contract,  by  creating  a  superior  lien 
without  the  mortgagee's  consent,  unless  it  be  in  the  exercise  of  a 
like  equitable  power  of  preserving  and  protecting  the  property. 
The  law  does  not  permit  the  obligation  of  contracts  to  be  im- 
paired. "  The  Constitution  of  the  United  States  inhibits  even  a 
state  from  doing  an  act  which  shall  have  that  effect.  And,  cer- 
tainly, a  court,  which  is  a  portion  of  the  government  of  the  state, 
cannot  have  a  power  which  is  denied  to  the  state  in  convention 
assembled.  If,  therefore,  the  action  of  a  chancellor  in  this  cause 
goes  to  the  extent  of  taking  the  property  of  the  defendant  corpo- 
ration into  his  hands  for  the  purpose,  through  his  appointees,  of 
completing  an  unfinished  work,  or  of  enlarging  or  improving  a 
finished  one,  beyond  what  is  necessary  for  its  preservation,  and  to 
that  end  of  raising  money,  by  charging  the  railroad  and  its  appUT- 

i  As  in  Kennedy  v.  St.  Paul  &  Pacific     B.  Co.  supra;  and  Hoover  v.   Montdalr 
k.  R.  Co.  supra;  Stanton  v.  Ala.  &  Chat-     &  Greenwood  Lake  By.  Co.  tupra. 
tanooga  B.   B.  Co.  supra;    Vermont  &       *  Meyer  v.  Johnston,  68  Ala.  287. 

Canada  U.  B.  Co.  v.  Vermout  Central   li. 

515 


§§  540,  541.]     receivers'  debts  and  certificates. 

tenances  with  liens  which  are  to  supersede  older  ones,  without  the 
consent  of  the  holders  of  these,  he  has  inadvertently  passed  be- 
yond the  boundaries  of  a  chancellor's  jurisdiction.  In  our  opin- 
ion, no  such  power  is  vested  or  resides  in  any  judicial  tribunal."1 
The  question  of  the  priority  of  receivers'  certificates  may  arise 
with  reference  to  three  classes  of  creditors  :  first,  with  reference 
to  the  bondholders  secured  by  the  mortgage  for  the  enforcement 
of  which  the  receiver  was  appointed ;  second,  with  reference  to 
prior  mortgagees  ;  and,  third,  with  reference  to  subsequent  mort- 
gagees. Owners  of  the  equity  of  redemption  stand  in  the  same 
legal  relation  to  such  certificates  as  subsequent  mortgagees,  since 
they  have  the  same  right  of  redemption. 

540.  When  bondholders,  or  trustees  in  their  behalf,  after 
obtaining  the  appointment  of  receivers,  have  petitioned  that 
they  might  be  allowed  to  borrow  money  on  the  credit  of  the 
property,  there  can  be  no  question  that  they  waive  the  priority 
secured  to  them  by  their  mortgage  in  favor  of  such  debts.  Even 
when  their  waiver  is  not  expressly  made,  it  is  implied  under  such 
circumstances.  Moreover,  even  if  such  petition  be  not  made  by 
or  in  behalf  of  such  bondholders,  but  by  the  receiver  himself,  or 
by  any  other  creditors,  if  the  bondholders  or  mortgage  trustees, 
being  parties  to  the  proceedings  and  before  the  court,  make  no 
objection  to  the  creating  of  such  debts  and  liens  upon  the  prop- 
erty by  the  receivers,  they  cannot  afterwards  object  to  according 
priority  to  the  liens  so  created.2 

541.  Upon  the  question  of  the  power  of  courts  to  give  re- 
ceivers' loans  precedence  over  existing  mortgages  there  are 
no  satisfactory  adjudications.  It  is  claimed  on  the  one  hand  that 
this  power  is  confined  to  cases  in  which  the  prior  mortgagees, 
either  expressly  or  impliedly,  consent  to  the  making  of  such  loans ; 
and  that  to  attempt  this  without  such  consent  would  be  an  inva- 
sion of  the  right  of  property  by  the  tribunals  whose  duty  it  is  to 
protect  this  fundamental  right.  But,  on  the  other  hand,  it  is 
claimed  that  where  it  is  necessary  to  raise  money,  not  to  extend 
or  improve  an  existing  road,  but  to  repair  and  preserve  a  road 
which  the  court  has  taken  custody  of  at  the  suit  of  a  junior  mort- 

1  Per  Manning,  J.,  in  Meyer  v.  John-         2  See  §§  639,  543. 
ston,  supra. 

516 


PRIORITY   OF   CERTIFICATES.  [§  541. 

gagee,  it  would  be  competent  for  the  court  to  authorize  the  rais- 
ing of  money  by  loans  upon  the  credit  of  the  entire  property, 
making  them  a  lien  upon  it  in  preference  to  the  senior  mortgages. 
Otherwise,  it  is  said,  it  might  be  practically  impossible  for  the 
court  to  give  any  protection  to  a  junior  mortgagee.  The  prop- 
erty might  be  amply  sufficient  to  meet  a  prior  mortgage  in  any 
event,  so  that  the  bondholders  under  it  might  be  opposed  to  any 
expenditure  upon  the  property,  even  to  keep  it  in  repair  and  in 
operation,  when  such  expenditure  might  involve  the  raising  of 
money,  by  creating  liens  therefor  which  should  override  their 
mortgage  ;  while  it  might  be  evident  that,  by  judiciously  repair- 
ing and  operating  the  road,  the  property  might  finally  be  disposed 
of  at  a  price  sufficient  to  pay  not  only  the  first  mortgage,  but  as 
well  the  junior  mortgage.  Moreover,  after  the  court  has  once 
taken  the  property  into  its  custody,  it  would  be  its  duty,  in  behalf 
of  all  the  parties  in  interest,  to  take  care  of  it,  and  not  allow  it  to 
go  to  decay  ;  and,  if  this  cannot  be  done  out  of  the  income  of  the 
property,  it  would  seem  to  follow  that  it  would  then  be  the  duty 
of  the  court  to  authorize,  for  this  purpose,  the  raising  of  money 
upon  the  credit  of  the  property  itself. 

Such  was  the  course  adopted  by  the  Supreme  Court  of  Alabama 
in  the  recent  important  case  of  Meyer  v.  Johnston.1  A  receiver 
having  been  appointed  upon  the  application  of  a  junior  mortgagee, 
the  court  approved  his  issuing  of  first  lien  certificates  of  indebted- 
ness, under  the  chancellor's  direction,  in  opposition  to  the  will  of 
prior  lien-holders.  In  addition  to  the  duty  of  the  court  to  preserve 
the  property  in  its  custody,  the  public  nature  of  railroads  was  con- 
sidered. "  If  it  were  not  for  the  public  quality  belonging  to  them, 
for  the  injury  that  would  be  done  to  the  interests  of  whole  com- 
munities that  have  become  dependent  on  a  railroad  for  accommo- 
dation in  a  thousand  things,  a  chancellor  might  say  to  the  parties 
most  interested,  Unless  you  furnish  means  for  the  protection  of 
this  property,  which  does  not  itself  afford  an  adequate  income  for 
the  purpose,  it  may  become  a  dilapidated  and  useless  wreck,  l'.ut 
tin-  inconvenience  and  loss  which  this  would  inflict  on  the  popu- 
lation of  large  districts,  coupled  with  the  benefit  t<>  parties  who, 
perhaps,  are  powerless  to  take  care  of  themselves,  of  preventing 
the  rapid  diminution  of  value,  and  derangement  and  disorganiza- 
tion that  would  otherwise  result,  seem  to  require  — not  for  the 

i  53  Ala.  237,  34G. 

.',17 


§  542.]  receivers'  debts  and  certificates. 

completion  of  an  unfinished  work,  or  the  improvement,  beyond 
what  is  necessary  for  its  preservation,  of  an  existing  one,  but  to 
keep  it  up,  to  conserve  it  as  railroad  property,  if  the  court  has 
been  obliged  to  take  possession  of  it  —  that  the  court  should  bor- 
row money  for  that  purpose,  if  it  cannot  otherwise  do  so  in  suffi- 
ciently large  sums,  by  causing  negotiable  certificates  of  indebted- 
ness to  be  issued,  constituting  a  first  lien  on  the  proceeds  of  the 
property,  and  redeemable  when  it  is  sold  or  disposed  of  by  the 
court." 

542.  The  principle  is  clear  that  a  mortgage  cannot  be  dis- 
placed or  postponed  without  the  consent  of  the  mortgagee. — 
The  court  cannot,  by  authorizing  a  receiver  to  create  liens  upon  the 
property,  displace  or  impair  the  mortgagee's  rights  of  property,  any 
more  than  the  legislature  can  impair  the  obligation  of  a  contract. 
The  court  has  power  while  in  possession  of  property  to  protect  it 
from  loss  and  destruction,  and  to  preserve  it  in  the  condition  in 
which  it  was  received  ;  and  for  this  purpose  it  may  authorize  the 
expenditure  from  the  property  itself  of  whatever  is  absolutely 
necessary  for  its  preservation  ;  and  may  do  this  as  against  any 
and  all  parties  interested.  The  extent  of  this  power  is  measured 
by  the  absolute  necessity  of  the  expenditure  for  the  protection 
of  the  property  of  which  the  court  has  taken  charge.  This  ex- 
penditure is  a  matter  of  duty  with  the  court,  and  not  a  matter  of 
discretion.  When  the  limit  of  such  actual  necessity  is  passed,  the 
consent,  express  or  implied,  of  those  whose  rights  of  property  will 
be  affected,  must  be  had.  If  large  expenditures  are  to  be  made  to 
put  a  railroad  into  condition  to  be  operated  by  a  receiver,  if  a  new 
road  is  to  be  built,  or  a  part  of  the  existing  road  is  to  be  rebuilt,  or 
if  new  rolling  stock  is  to  be  purchased  for  it,  the  debts  incurred  for 
these  purposes  should  have  the  sanction  of  the  mortgagees,  of  the 
property.  If  such  mortgagees  are  not  parties  to  the  suit  in  which 
the  receiver  was  appointed,  they  should  be  summoned  in  before  the 
granting  of  any  petition  to  charge  the  property  with  such  debts.1 
When  prior  mortgagees  do  not  assent  to  receivers'  liens,  these 
should  be  made  expressly  subject  to  the  prior  mortgages.2 

i  See  Regent's  Canal  Iron  Works  Co.  in     1878,  on  "Postponing  Priorities  of  First 
re,  L.  R.  3  Ch.  D.  41 1  ;  stated  in  §  552 ;  and     Mortgage  Liens,"  by  Judge  Clayton, 
see  article  13  Am.  Law  Rer.  40,  October,        2  As   was  done  In  re    U.   S.  Rolling 

Stock  Co.  55  How.  (N.  Y.)  Pr.  286. 

518 


PRIORITY    OF   CERTIFICATES.  [§  543. 

543.  Neither  the  mortgagor  nor  his  assignees  can  ques- 
tion the  priority  of  receivers'  certificates.  —  In  a  recent  case 
before  the  Supreme  Court  of  the  United  States,1  it  appeared  that 
the  Lake  Superior  Ship  Canal,  Railroad,  and  Iron  Company,  after 
executing  two  mortgages  of  its  property,  including  a  large  land 
grant  from  the  United  States,  made  default  in  the  payment  of  in- 
terest, and  a  receiver  was  appointed.  The  receiver,  in  order  to 
obtain  money  necessary  for  completing  the  canal,  and  to  save  the 
land  grant,  obtained  an  order  of  court  authorizing  him  to  create 
and  sell  certificates  of  indebtedness  to  the  amount  of  $500,000, 
secured  by  a  mortgage  of  all  the  property,  which  was  to  be  prior 
in  right  to  all  other  mortgages.  The  creditors  secured  by  the  ex- 
isting mortgages  appear  not  to  have  asked  for  this  order,  but  they 
were  all  there  in  court  and  did  not  object  to  it.  The  company 
afterwards  having  gone  into  bankruptcy,  the  assignees  were  made 
parties  to  the  foreclosure  suit,  and  objected  to  the  priority  ac- 
corded by  the  decree  of  foreclosure  to  the  certificates  issued  by  the 
receiver.  But  the  court  held  that  neither  the  mortgagor  nor  his 
assignee  in  bankruptcy  could  object  to  the  order  in  which  the  pri- 
ority of  valid  and  subsisting  liens  on  the  premises  is  fixed  by  the 
decree.  It  could  make  no  difference  to  them  whether  the  certifi- 
cates are  paid  before  other  liens  are  dischai'ged,  or  after  all  the 
debts  seciu'ed  by  mortgage  have  been  satisfied.  The  assignees 
can  take  nothing  until  all  liens  on  the  assigned  property  have 
been  removed.  "  It  would  be  superfluous,"  said  Mr.  Justice 
Strong,  delivering  the  judgment  of  the  court,  "  to  spend  much 
time  in  considering  the  power  of  the  court  to  confer  the  authority 
upon  its  receiver  that  it  attempted  to  confer.  As  a  Court  of 
Equity,  having  the  mortgaged  property  in  charge,  it  was  its  plain 
duty  to  preserve  it,  not  only  for  the  benefit  of  the  lien  creditors, 
but  also  for  the  benefit  of  the  company  whose  possession  the 
court  had  displaced.  Under  the  provisions  of  the  acts  of  Con- 
gress, granting  the  lands  covered  by  the  mortgages,  the  lands 
reverted  to  the  United  States,  unless  the  ship  canal  should  be 
finished  within  a  fixed  period,  and  that  period  was  passing  away 
when  tlic  order  was  granted  to  the  receiver  to  raise  money  £01 
completing  the  canal,  by  tin;  issue  of  certificates  secured  by  his 
mortgage.  The  canal  was  unfinished,  and  there  were  in  the  re- 
ceiver's  hands  no  funds  to  finish  it.     Hence,  there  was  a  oeces- 

1  Jerome  v.  McCarter,  'J4  !'.  B,  784. 

511) 


§  544.]  receivers'  debts  and  certificates. 

sity  for  making  the  order  which  the  court  made,  —  a  necessity 
attending  the  administration  of  the  trust  the  court  had  under- 
taken. The  order  was  necessary  alike  for  the  lien  creditors  and 
for  the  mortgagors  ;  whether  the  action  of  the  court  could  make 
the  receiver's  mortgage  superior  in  right  to  the  mortgages  which 
existed  when  it  was  made,  it  is  hopeless  to  inquire.  None  of  the 
creditors  secured  by  those  other  mortgages  objected  to  the  order 
when  it  was  made,  though  they  were  all  then  in  court.  None  of 
them  object  to  its  lien  or  its  priority  now.  And  we  think  the 
appellants,  either  as  representatives  of  their  assignors  or  of  gen- 
eral creditors,  cannot  be  heard  to  object.  Beyond  doubt,  they 
would  not  be  entitled  to  a  return  of  the  property  discharged  from 
liability  for  the  receiver's  certificates  remaining  unpaid,  even  if 
all  the  other  mortgages  were  satisfied.  As  against  them  the  cer- 
tificates are  certainly  charges  upon  the  property,  and  they  have, 
therefore,  no  right  to  complain  of  the  decree,  which  gives  the 
certificates  priority  to  other  liens." 

544.  Provision  is  made  by  statute  in  a  few  states  that  re- 
ceivers may  be  authorized  to  borrow  money  and  create  liens  upon 
the  property.  Thus  in  Vermont x  it  is  provided  that  the  Court 
of  Chancery  shall  have  power  to  authorize  the  receivers  or  mana- 
gers of  property  in  the  course  of  administration  in  such  court, 
when  the  interest  of  the  parties  or  property  shall  require  it,  to 
borrow  money  as  it  may  be  needful  for  the  proper  and  convenient 
discharge  of  their  duties,  at  a  rate  not  exceeding  eight  per  cent., 
and  on  such  other  terms,  conditions,  limitations,  and  security  as 
shall  to  the  court  seem  fit.  But  it  is  provided  that  nothing  con- 
tained in  this  act  shall  be  construed  to  prevent  such  receivers  or 
managers  from  borrowing  money  for  temporary  purposes  in  the 
same  manner  they  could  before  the  passage  of  this  act. 

In  New  Jersey  2  the  receiver  of  an  insolvent  railroad  company 
is  empowered  to  operate  the  road  for  the  use  of  the  public,  and 
all  expenses  incident  to  the  operation  of  such  road  are  declared 
to  be  a  first  lien  on  the  receipts,  to  be  paid  before  any  other  in- 
cumbrance whatever. 

In  Ohio  3  it  is  provided  that  the  earnings  of  a  railroad  in  the 

1  Gen.  Stat.  1870,  p.  924;  Acts  1866,         a  1  K.  S.  1877,  p.  196,  §  106  ;  Laws  1874, 
No.  41,  page  53.  p.  11. 

3  Laws  1872,  p.  31,  §§  1,3,  4. 
520 


NEGOTIABILITY    OF   RECEIVERS'    CERTIFICATES.  [§  545. 

hands  of  a  receiver,  and  all  other  moneys  coming  into  his  hands  as 
such  receiver,  shall  be  applied  first  to  pay  costs  and  expenses  of 
the  suit  in  which  he  was  appointed,  and  the  expenses  of  operating 
and  managing  the  road,  including  all  materials  and  supplies  pro- 
cured by  him  therefor,  and  also  liabilities  incurred  by  him  in  such 
operation  and  management ;  and  that  all  judgments  recovered 
against  the  receiver  of  a  railroad  for  injuries  to  person  or  property, 
or  for  wages  of  employees,  or  work  done,  or  materials  furnished 
while  such  receiver  is  operating  or  managing  such  railroad,  shall 
be  a  lien  on  the  funds  in  his  hands  as  receiver,  but  shall  affect 
him  only  in  his  trust  capacity,  and  not  individually. 

When  the  line  of  railroad  operated  by  a  receiver  lies  wholly 
within  the  State  of  Ohio,  all  moneys  coming  into  the  hands  of 
the  receiver,  whether  arising  from  the  operating  of  the  road  or 
otherwise,  shall  be  kept  and  deposited  in  such  place  within  this 
state  as  the  court  may  direct,  until  properly  disbursed ;  but  if  any 
portion  of  said  railroad  shall  lie  in  another  state  or  states,  then 
said  receiver  shall  be  required  to  deposit  in  this  state  at  least  such 
share  of  the  funds  in  his  hands  as  is  proportioned  to  the  value  of 
the  property  of  said  road  within  the  limits  of  Ohio. 

II.   Negotiability  of  Receivers'  Certificates. 

545.  Such  certificates,  however,  are  not  commercial  paper, 
good  in  the  hands  of  a  bond  fide  holder,  without  regard  to  any 
irregularity  or  infirmity  attending  their  original  issue.  They 
must  be  governed  according  to  the  authority  conferred  upon  the 
receiver  to  issue  them,  and  not  according  to  the  form  which  he 
may  choose  to  give  them.  Where  receivers  were  authorized  to  dis- 
pose of  such  certificates,  payable  ten  years  after  date,  for  not  less 
than  ninety  cents  on  the  dollar  of  their  par  value,  and  ;it  a  rate  of 
interest  not  exceeding  eight  per  cent,  per  annum,  and  they  hy- 
pothecated them  at  an  exorbitant  rate  of  interest,  and  received 
only  a  third,  or,  at  most,  half  of  the  par  value  of  the  certificates, 
it  was  held  that  the  certificates  were  good  in  the  hands  of  (he 
holders  of  them  for  the  amount  <»f  money  actually  advanoed  upon 
them,  with  interest  according  to  the  terms  of  the  order  of  the 
court  under  which  they  were  issued  ;  but  that  the  Lenders  of  t In* 
money  were  not  bound  to  sec;  that  the  money  was  applied  to  the 
purposes  of  the  trust.  The  money  they  have  actually  advanoed 
cannot  he  confiscated,  because  the  officers  appointed  by  the  court 

621 


§  546.]  receivers'  debts  and  certificates. 

have  been  unfaithful  to  their  trust.1  The  certificates  in  this  case 
were  made  payable  to  bearer,  but  on  their  face  they  recited  that 
they  were  made  in  pursuance  of  an  order  of  Judge  Bradley,  on  the 
twenty-sixth  day  of  August,  1872,  in  a  suit  in  equity  pending  in 
the  Circuit  Court  of  the  United  States  at  Mobile  for  the  District 
of  Alabama,  in  the  Fifth  Judicial  Circuit,  between  parties  named. 
The  evidence  showed  that  the  money  was  advanced  upon  the 
notes  of  the  receivers,  the  certificates  being  pledged  as  collateral, 
with  power  to  sell  them  at  public  or  private  sale  without  notice. 
But  the  court  held  that  the  lenders  of  money  on  the  hypothecated 
certificates  might  be  compelled  to  allow  their  money  to  go  on  the 
terms  prescribed  by  the  orders  of  the  court,  both  as  to  the  rate  of 
interest  and  the  time  of  payment,  and  ordered  that  the  certificates 
not  necessary  at  ninety  cents  on  the  dollar,  to  secure  the  sums  so 
advanced,  should  be  returned  to  the  receivers. 

546.  Certificates  issued  without  consideration  are  invalid 
even  in  the  hands  of  an  innocent  holder  for  value.  Under  a  con- 
tract for  the  purchase  of  iron  rails,  a  receiver  issued  certificates 
therefor,  which  recited  the  order  of  court,  and  were  made  payable 
to  bearer.  The  rails  were  never  delivered  or  tendered  to  the  re- 
ceiver, but  the  certificates  were  transferred  to  an  innocent  holder 
for  value.  In  a  suit  by  him  it  was  adjudged  that  he  could  not 
recover  ;  that  the  receiver  had  no  powers  except  those  derived 
from  the  order  of  court  authorizing  the  issuing  of  the  certificates, 
and  therefore  could  issue  certificates  only  "  for  money  borrowed, 
material  furnished,  labor  performed,  or  on  account  of  contracts 
made  by  him  for  or  on  account  of  the  construction  or  completion 
of  said  road  or  any  part  thereof."  2  In  the  language  of  the  court, 
"  When  the  material  was  furnished  or  labor  performed  he  was 
authorized  to  issue  the  certificates  in  payment  therefor,  and  not 
until  then.  And  if  he  made  a  contract  for  the  construction  of  the 
road  he  might  issue  certificates  as  the  material  was  furnished  or 
the  labor  performed,  and  on  the  completion  of  the  road  he  could 
issue  his  certificates  in  final  payment.  But  the  power  is  not  con- 
ferred to  issue  certificates  in  payment  for  material  not  furnished 
or  labor  not  performed.     On  the  contrary,  we  are  of  the  opinion 

1  Stanton  v.  Alabama  &  Chattanooga  &  Western  R.  R.  Co.,  Supreme  Court  of 
R.  R.  Co.  2  Woods,  506.  Iowa,   June   Term,   1878,    7    Cent.   L.  J. 

2  Bank  of  Montreal  v.  Chicago,  Clinton     267  ;  6  Reporter,  616. 

522 


NEGOTIABILITY    OF   RECEIVER'S    CERTIFICATES.  [§  546. 

it  fairly  appears  he  was  prohibited  from  so  doing.  If  the  neces- 
sity existed  for  enlarged  powers,  they  should  have  been  applied 
for."  Moreover  the  certificates  referred  on  their  face  to  the  order 
of  court  under  which  they  were  issued,  and  the  holder  was  bound 
to  take  notice  of  the  limitation  of  the  receiver's  power,  and  bound 
to  know  whether  the  certificates  in  question  were  issued  in  accord- 
ance with  the  power  conferred. 

523 


CHAPTER  XVIII. 

DEBTS   OF  MORTGAGE   TRUSTEES   IN   POSSESSION". 

I.  Right  of  trustees  to  repayment  of  their  I  II.  Liability  of  trustees  operating  a  rail- 
debts  and  expenses  out  of  the  trust  fund,  |      road  as  common  carriers,  556. 
547-555. 

I.   Right  of  Trustees  to  Repayment  of  their  Debts  and  Expenses 
out  of  the  Trust  Fund. 

547.  Trustees  under  railroad  mortgages  have  an  inherent 
equitable  right  to  be  reimbursed  all  expenses  reasonably  in- 
curred in  the  execution  of  the  trust,  and  for  such  expenses  they 
have  a  lien  upon  the  trust  property.1  Their  rights  go  even  far- 
ther than  this ;  for,  if  the  trust  property  prove  insufficient  to  re- 
imburse the  trustees  for  their  proper  expenses  and  reasonable 
compensation,  they  may  call  upon  the  bondholders  in  whose  be- 
half the  trust  was  created  to  pay  them.  It  is  immaterial  that  the 
deed  of  trust  makes  no  provision  for  the  payment  of  such  expenses 
and  charges ;  this  is  a  legal  right,  which  necessarily  attends  the 
administration  of  the  trust.  The  franchise  and  property  conveyed 
to  the  trustees  become  charged  with  a  lien  in  their  favor,  and  they 
remain  so  charged  until  the  trustees  themselves  do  something  that 
operates  as  a  discharge  of  such  lien.  If,  after  long  litigation  by 
the  trustees  to  establish  the  mortgage  lien,  and  to  enforce  it  by 
foreclosure,  subsequent  mortgagees  buy  up  the  bonds  secured  by 
the  mortgage,  and  form  a  new  corporation,  instead  of  redeeming 
the  first  mortgage  by  paying  the  amount  fixed  by  the  decree  of 
foreclosure,  the  right  of  the  trustees  to  hold  all  the  lien  originally 
existing  in  them  for  their  services  and  expenses  in  administering 
the  trust  is  nowise  affected.  Decree  of  foreclosure,  in  such  case, 
would  have  full  effect  upon  the  title,  as  between  mortgagor  and 
mortgagee ;  and,  although  all  the  bondholders  have  been  satisfied, 

1  Rensselaer  &  Saratoga  R.    R.  Co.  v.  Miller,  47  Vt.  146;  Morison  v.  Morison, 
7DeG.,  M.  &G.214. 
524 


RIGHT   OF  TRUSTEES   TO  REPAYMENT.        [§§  548,  549. 

the  legal  title  is  in  the  trustees  ;  and  if  the  new  corporation,  or 
the  subsequent  mortgagees,  would  prevent  the  trustees  asserting 
their  title,  and  entering  into  possession,  they  must  satisfy  the 
proper  claims  they  have  upon  the  property.  Their  lien  upon  the 
property  extends  not  merely  to  claims  for  their  own  services,  and 
for  payments  actually  made  by  them,  but  to  advances  made  to 
them  by  bondholders  to  supply  them  with  funds  in  the  course  of 
the  administration  of  the  trust ;  for  such  advances  are,  in  effect, 
loans  to  the  trustees  for  the  benefit  of  the  trust.1 

548.  When  the  object  of  a  receivership  has  been  accom- 
plished, and  the  occasion  for  it  no  longer  exists,  but  it  is  nev- 
ertheless continued,  in  form  and  name,  by  consent  of  the  parties 
in  interest,  the  managing  party  is  not  regarded  as  a  receiver  in 
the  sense  of  the  law,  but  as  having  the  character  and  office  of  an 
administrator  of  a  trust,  by  agreement  of  the  parties.  Conse- 
quently, the  debts  contracted  by  such  manager,  although  having 
the  formal  sanction  of  the  court,  cannot  be  established  as  receiver- 
ship liens,  but  are  debts  which  are  a  lien  upon  the  trust  property, 
under  the  common  doctrine  that  disbursements  and  expenses, 
properly  made  and  incurred  by  trustees,  on  account  of  the  trust 
property,  are  entitled  to  payment  out  of  the  trust  property.  A 
decree  entered  by  consent,  after  the  occasion  for  the  receivership 
has  ceased,  for  a  new  and  continuing  system  of  tenure  and  manage- 
ment, does  not  make  the  manager  the  officer  and  representative  of 

he  court,  but  merely  the  agent  and  representative  of  the  parties. 

549.  These  points  are  forcibly  illustrated  by  the  case  of 
the  Vermont  Central  Railroad  Company.2 — In  the  year  1849, 
the  Vermont  and  Canada  Railroad  Company  leased  to  the  Ver- 
mont Central  Railroad  Company  its  road  and  all  its  property,  to 
hold  under  a  perpetual  lease,  reserving  as  rent  eight  per  cent. 
upon  the  cost  of  its  road  and  property,  payable  semi-annually. 
In  the  following  year  an  addition  was  made  to  the  lease,  provid- 
ing that,  after  four  months' default  in  payment  of  the  rent,  the 
Vermont  ami  Canada  Railroad  Company  might  take  possession 
of  both  roads,  and  all  the  property  of  both,  and  run  them  bill,  out 

1  Rensselaer  &.  Saratoga  It.  It.  Co.  v.  mont  Central  B.  R.  Co.,  decided  Oct.  80, 
Miller, supra.  1877,  so  Vt.  BOO;  reported  En  li  Am.  By. 

'J   Vermont  &  Canadu  It.  It.  Co.  t-.  Ver-     Bep.  4'J7-.">75. 


§  549.]         DEBTS   OF   MORTGAGE   TRUSTEES   IN   POSSESSION. 

of  the  net  income,  the  accrued  rent  should  be  paid  ;  and  then  pos- 
session should  be  surrendered  to  and  resumed  by  the  Vermont 
Central  Railroad  Company,  and  held  and  used  under  the  original 
lease.  In  1851,  the  Vermont  Central  Railroad  Company  executed 
a  first  mortgage  of  its  road,  and  on  the  twentieth  day  of  May,  in 
the  following  year,  a  second  mortgage ;  but  both  mortgages  were 
made  expressly  subject  to  the  rights  of  the  Vermont  and  Canada 
Railroad  Company  under  the  lease.  On  the  twenty-eighth  day 
of  the  following  June,  the  Vermont  Central  Railroad  surrendered 
to  the  first  mortgage  trustees,  who  then  took  possession,  and  the 
company  has  never  since  had  possession.  The  last  payment  of 
rent  under  the  lease  was  made  on  the  first  day  of  June,  1854. 
The  following  year,  the  Vermont  and  Canada  Railroad  Company 
filed  a  bill  in  the  Court  of  Chancery  in  Franklin  County  against 
the  Vermont  Central  Railroad  Company,  and  the  trustees  under 
both  mortgages,  and  obtained  the  appointment  of  temporary  re- 
ceivers ;  and  after  protracted  litigation  the  Supreme  Court,  in 
January,  1861,  issued  its  mandate  to  the  Court  of  Chancery,  di- 
recting that  the  receivers  then  in  possession,  or  such  as  the  court 
might  see  fit  to  appoint,  should  continue  in  the  possession  and 
management  of  the  roads,  and  secure  the  tolls  and  income  thereof, 
and  cause  the  same  to  be  paid  over  in  extinguishment  of  the  rents 
then  due,  or  which  might  become  due,  until  the  same  should  be 
fully  satisfied.  The  Court  of  Chancery  entered  a  decree  accord- 
ingly, continuing  the  receivers  in  the  management  of  the  prop- 
erty, and  directing  them  to  pay  over  semi-annually,  on  the  first 
days  of  December  and  June,  such  sums  as  might  accrue  from  the 
earnings  of  the  property,  until  the  sums  then  due  and  growing 
due  for  rent  should  be  fully  paid.  Under  this  mandate  and  de- 
cree the  receivership  was  administered  until  1864,  when  a  com- 
promise decree  was  entered  in  the  Court  of  Chancery,  by  agree- 
ment of  the  parties.  By  this  compromise  the  construction  account 
of  the  Vermont  and  Canada  Railroad  Company  was  settled  ;  and 
under  the  authority  of  an  act  of  the  legislature  the  back  rent  was 
converted  into  stock,  and  the  capital  stock  was  increased  to 
$2,000,000.  To  carry  this  adjustment  into  effect,  a  decree  was 
entered  January  nineteenth,  1864,  declaring  the  capital  stock  of 
the  Vermont  and  Canada  Railroad  Company  to  be  $2,000,000, 
which  should  be  the  basis  for  the  computation  of  the  rents  pro- 
vided for  in  the  original  lease,  to  be  paid  by  the  trustees  and  re- 
526 


RIGHT    OF   TRUSTEES    TO    REPAYMENT.  [§  549. 

ceivers  from  the  income  of  the  roads,  in  semi-annual  payments, 
beginning  on  the  first  day  of  June,  1864.  The  decree  further 
provided  for  a  board,  to  be  chosen  annually  by  the  stockholders, 
to  advise  the  trustees  and  receivers  in  respect  to  the  management 
of  the  roads  and  property,  and  to  audit  the  accounts.  This  de- 
cree was  manifestly  one  of  consent. 

In  1865,  upon  the  petition  of  the  receivers,  the  court  authorized 
them  to  borrow  6700,000,  and  to  pledge  equipments  of  the  road 
as  security.  This  decree  was  apparently  made  with  the  consent 
of  all  the  parties  in  interest.  In  1867,  a  further  equipment  loan 
of  8300,000  was  authorized,  and  also  a  loan  of  §500,000,  for  the 
payment  of  interest  on  the  first  and  second  mortgages.  In  1869, 
a  third  equipment  loan  was  authorized  of  $500,000.  In  1871,  a 
loan  of  §1,000,000  was  authorized  ;  and  in  1872,  a  loan  of  §2,500,- 
000,  part  of  which  was  to  be  applied  to  retiring  the  first  equip- 
ment loan.  The  decree  authorizing  the  latter  loan  provided  that 
the  notes  issued  under  the  decree  should  constitute  a  lien  and 
charge  upon  the  trust  property  under  the  control  of  the  trustees 
and  managers,  and  the  earnings  thereof. 

From  time  to  time,  during  the  period  of  these  decrees,  there 
had  been  sundry  decrees  and  orders,  changing  and  appointing 
managers,  and  ratifying  contracts  of  lease  with  other  roads, — 
the  Ogdensburgh  and  Lake  Champlain  Railroad  Company,  the 
Rutland  Railroad  Company,  and  the  Missisquoi  Railroad  Com- 
pany. 

All  these  proceedings  professed,  and  were  represented  to  the 
chancellor,  to  be  amicable,  and  for  the  most  part  to  have  been  de- 
vised and  agreed  upon  by  leading  parties.  No  one  appeared  in 
any  instance  with  protest  or  objection.  No  one  made  question  or 
objection  afterwards,  till  adverse  litigation  was  begun  in  1873, 
by  the  Vermont  and  Canada  Company's  petitioning  for  an  order 
for  tin-  payment  of  the  overdue  rent,  and  an  order  for  the  removal 
of  the  managers. 

In  the  mean  time,  a  corporation  by  the  name  of  tin-  ( Jentral  \  er- 
mont  Railroad  Company  had  aucceeded  to  the  managenienl  of  the 
property  as  receivers.  Finally,  in  1876,  this  company  and  vain  mis 
individuals  filed  a  petition,  setting  forth  that  for  fifteen  years  the 
Vermont  and  Canada  and  tin;  Vermonl  Centra]  Railroad  <  !om- 
panies  had  been  under  the  administration  of  the  courl  in  this 
cause  by  managers  appointed  by  the  court;  that  during  Bueh  ad 

527 


§  549.]         DEBTS   OF   MORTGAGE   TRUSTEES   IN   POSSESSION. 

ministration  large  sums  of  money  had  been  borrowed  by  the  man- 
agers, and  bonds  issued  therefor  under  different  decrees,  amount- 
ing in  the  whole  to  about  $4,337,000,  outstanding,  on  which  was 
also  due  about  $175,000  of  interest  in  default;  that,  in  addition 
to  this  funded  debt,  there  was  outstanding  also  a  floating  debt  of 
about  $2,000,000  ;  that  the  managers  were  without  money  and 
without  credit ;  and  therefore  they  prayed  that  these  debts  might 
be  declared  a  charge  and  first  lien  upon  the  property  of  these 
roads,  and  that  they  might  be  sold,  with  all  their  equipments,  for 
the  payment  of  these  and  other  debts.  This  petition  was  dis- 
missed by  the  chancellor ;  and,  on  appeal  to  the  Supreme  Court  of 
the  state,  his  decree  was  affirmed.  Mr.  Justice  Barrett  delivered 
the  opinion  of  the  court,  reviewing  all  the  proceedings  in  the  case 
from  the  time  they  were  commenced  in  1861,  and  fully  examining 
all  the  legal  questions  involved.1  The  original  receivership  was 
undeniably  proper,  as  it  was  the  only  practicable  remedy  for  en- 
forcing the  security  of  the  Vermont  and  Canada  Company  upon 
the  earnings  of  the  two  roads  for  its  rent,  except  putting  this 
company  into  the  possession  and  management  of  the  roads ;  and 
this  the  court  declined  to  do,  for  the  reason  that  the  management 
might  be  such  as  to  render  such  possession  unduly  continued.  It 
was  supposed  that  a  receivership,  interested  to  have  this  claim 
satisfied  at  the  earliest  practicable  day,  so  that  subsequent  rights 
and  interests  might  be  served  by  the  property,  would  result  in  the 
earliest  practicable  enfranchisement  of  the  property  from  judicial 
control,  and  the  final  ceasing  of  the  suit. 

In  what  was  provided  in  the  compromise  decree,  as  to  the  pos- 
session and  management  of  the  property,  the  court  was  perform- 
ing no  duty,  but  merely  accorded,  ex  gratia,  assent  and  ratification. 
It  exercised  no  judicial  judgment,  and  did  not  put  forth  the  exer- 
tion of  its  prerogative.  It  is  fundamental  in  any  idea  of  a  receiv- 
ership that  the  court  is  to  have  the  active  and  responsible  control 
of  the  administration.  That  was  not  so  in  this  case  ;  but,  on  the 
contrary,  the  whole  course,  in  general  and  in  detail,  was  devised 
and  executed  by  the  managers,  and  their  associates  and  advisers 
in  interest,  without  any  supposition  on  the  part  of  themselves  or 
of  the  court  that  the  court  had  any  real  office  to  perforin  calling 
into  exercise  judicial  judgment,  direction,  or  control.     "  The  peti- 

1  Oct.  30,    1877.     Vermont  &  Canada     50  Vt.  500;  14  Am.  Ry.  Rep.  497,  559, 
R.  R.  Co.  v.  Vermont  Central  R.  R.  Co.     565,  567,  568,  570. 
528 


EIGHT    OF  TRUSTEES   TO   REPAYMENT.  [§  549. 

tion  cannot  be  maintained  then,  and  the  prayer  thereof  granted," 
said  the  learned  judge,  "  on  grounds  and  reasons  and  rules  of  the 
law  peculiar  to  a  receivership,  as  it  is  understood  and  provided  for 
and  warranted  by  the  law.  If  it  were  to  be  assumed  that  the 
trust  debts,  as  they  are  called,  including  what  is  called  the  floating 
debt,  would  be  a  first  lien  on  all  the  property,  if  incurred  in  the 
administration  of  a  proper  receivership,  and  that  it  would  be  the 
province  and  duty  of  the  court  to  order  the  sale  of  the  property, 
as  the  only  means  of  giving  effect  to  that  lien,  in  rightful  satisfac- 
tion of  such  debts,  it  would  not  follow  that  such  is  true  in  the  case 

as  it  is  before  us In  the  other  cases  of  receiverships,  where 

allowances  were  upheld,  the  expenditures  and  services  were  in  re- 
ceiverships of  necessity,  and  where  the  expenditures  and  services 
were  in  the  administration  of  the  office,  under  the  active  and  af- 
firmative direction  of  the  court.  The  other  citations  point  to  the 
common  doctrine  of  the  lien  of  trustees  for  the  proper  expenses 
and  disbursements  of  administering  the  trust. 

"  It  may  now  be  said  summarily,  as  the  result  in  this  respect, 
that  the  Vermont  and  Canada  Railroad  Company  stand  upon  their 
lease,  under  the  compromise  decree,  and  the  decrees  and  orders 
following,  with  the  right  to  have  the  stipulated  rent  paid  out  of 
the  net  earnings.     Subject  to  this,  the  mortgage  bondholders  of 
the  Vermont  Central  Railroad  Company  stand  upon  their  mort- 
gages, under  the  compromise  decree,  and  the  decrees  and  orders 
following,  with  the  right  to  have  the  net  earnings  appropriated 
according  to  the  respective  provisions  in  that  behalf.     '  Net  earn- 
ings '  means  what  is  left  after  paying  the  legitimate  cost  and  ex- 
pense of  making  earnings  by  the  use  of  the  property.     The  hold- 
ers of  the  trust  bonds  stand  upon  the  rights  created  and  vested  by 
the  respective  transactions  constituting  the  issue,  appropriation, 
and  receipt  thereof  respectively,  including  a  right  to  the  security 
provided,  according   to   the  legal  effect  of   the  provision  making 
such  security.     The  bonds  were  taken  for  the  required  considera- 
tion, in  faith  of  the  promise  to  pay  interest  and  principal  as  stipu- 
lated, and  in  reliance  on  the  security  provided  and  pledged.     '1  bifl 
vested  in  the  bondholder  the  right  resulting  from   the  transaction 
by  the  legal  effect  of  the  promise,  and  to  the  security  pledged. 
This  is  in  no  manner  affected  by  tin'  facl  that  the   promise  may 
not  be  performed,  and  tin-  security  may  prove  inadequate  ;md 
worthless.      Of  course,  the  bond  buyers  knew  what  the)  were  buy- 

m  529 


§  549.]         DEBTS   OF   MORTGAGE   TRUSTEES   IN   POSSESSION. 

ing  ;  namely,  a  bond  issued  and  secured  in  the  carrying  on  of  the 
management  of  the  property  by  the  persons  in  charge,  as  such 
management  was  shown  by  the  records  and  files  and  official  docu- 
ments to  have  been  created  and  carried  on,  and  which  might  con- 
tinue to  go  on  indefinitely  in  the  uncertain  future.  In  view  of 
this,  each  bondholder  took  the  hazard  of  both  the  present  and 
prospective  value  of  his  bonds,  as  depending  on  the  ability  of  the 
promisor  and  the  value  of  the  security.  If  it  should  turn  out  that 
the  pledged  property  had  been  used  up  or  become  worthless,  and 
the  car  service  fruitless,  and  the  guaranty  of  the  Vermont  and 
Canada  Railroad  Company  a  barren  resource,  that  would  not 
touch  the  validity  and  operative  force  of  the  contract  and  the 
pledge.  As  to  what  is  called  the  'floating  debt,'  which  rests  upon 
the  credit  given  to  the  trust  management,  the  reason  is  not  ob- 
vious why  that  debt  should  have  precedence  to  any  other  of  the 
trust  debts,  —  trust  debts,  as  distinguished  from  the  claims  of  the 
Vermont  and  Canada  Railroad  Company  and  the  Vermont  Cen- 
tral bondholders.  The  secured  trust  debts  were  contracted  in  the 
carrying  on  of  the  business  of  the  management,  for  the  purposes 
contemplated  and  sought  to  be  accomplished  by  the  managers, — 
just  as  a  floating  debt  has  been  contracted,  and  for  the  same  pur- 
poses. It  can  make  no  difference  whether  that  debt  is  due  to  out- 
side parties,  or  to  the  parties  managing.  It  is  equally  on  the 
credit  of  the  trust.  The  fact  that  it  is  without  specific  security 
does  not  give  it  a  higher  rank  or  a  different  right  from  debts  with 
security.  It  stands  upon  the  credit  which  induced  the  contracting 
of  it,  namely,  the  promise  of  the  managing  party  in  view  of  ability 
and  means  for  payment,  just  as  the  secured  debts  stand  on  the 
same  credit  and  the  security  provided.  What  is  now  claimed  is, 
that  that  debt  shall  have  precedence  of  the  other  trust  debts, 
making  it  first  in  right  as  to  means  of  payment,  even  to  the  ap- 
propriation of  the  security  pledged  for  the  payment  of  the  other 
debts.  There  would  be  no  warrant  for  this,  even  in  case  of  a 
proper  receivership.  The  trust  is  the  debtor  to  each  and  all  its 
creditors.  In  the  settlement  of  estates  of  deceased  debtors,  the 
statute  gives  priority  to  doctors'  bills,  and  other  expenses  of  the 
last  sickness,  and  funeral  charges.  But  we  know  of  no  statute 
or  rule  of  law  that  would  warrant  the  priority  claimed  in  this 

case 

"  In  view  of  that  relation,  is  there  any  warrant  of  law  for  order- 
530 


RIGHT    OF   TRUSTEES   TO   REPAYMENT.  [§  550. 

ing  a  sale  of  the  property  ?  No  ease  and  no  book  has  been  pre- 
sented or  come  to  our  notice  in  which  it  has  been  propounded  or 
held  that,  in  a  real  receivership  for  managing  property,  to  realize 
profits  by  use,  and  not  with  a  view  to  its  ultimate  sale,  and  the 
realization  of  money  assets  thereby,  the  property  lias  been  or 
should  be  sold  to  realize  means  for  paying  charges  incurred  in 
the  management.  The  cases  are  numerous  of  sales  b}^  receivers 
under  the  order  of  the  Court  of  Chancery.  .But  no  case  is  found 
in  which  such  sale  has  been  ordered  as  a  means  of  reimbursing 

receivership  expenses,  in  virtue  of  a  lien  in  that  behalf If 

it  were  to  be  now  held  that  the  property  itself  in  the  hands  of 
the  Central  Vermont  Railroad  Company  is  subject  to  the  lien  as 
claimed,  such  lien  would  not  warrant  an  order  of  sale  in  the  first 
instance.  It  would  be  a  redeemable  lien,  resting  upon  the  prop- 
erty in  the  character  of  an  equitable  mortgage  ;  and  a  sale  would 
be  ordered  in  any  event  only  on  failure  to  redeem,  according  to 
the  final  decree  in  that  behalf." 

550.  Policy  of  confining  trustees  in  their  management  of 
the  property  to  the  legitimate  objects  of  the  trust.  —  The 
facts  of  the  case  and  the  grounds  of  the  decision  have  thus  been 
stated  at  considerable  length,  because  the  case  is  a  remarkable 
one  in  many  ways,  and  in  its  different  phases  has  been  a  subject 
of  much  controversy,  out  of  court  as  well  as  in.  It  presents  many 
novel  and  interesting  points.  The  case  will  be  a  warning  to  all 
bondholders  and  other  creditors  of  railroad  corporations  against 
their  allowing  either  receivers  or  trustees  in  the  possession  of 
their  property  to  manage  it  otherwise  than  to  secure-  its  preser- 
vation during  temporary  emergencies.  The  management  in  this 
case  resulted  favorably,  so  long  as  it  was  confined  to  the  operating 
of  the  roads  as  they  were  when  the  receivers  were  first  appointed  ; 
but,  seeking  to  secure  even  better  results,  the  trustees  enlarged 
the  field  of  their  operations, — they  took  possession  under  Leases 
of  several  other  railroads,  and  of  a  fleet  of  steamers  on  the  west- 
ern lakes.  These  new  enterprises  resulted  disastrously ;  and  the 
managers,  after  obtaining  repeated  Loans,  at  last  found  they  had 
incurred,  in  the  management  of  the  property,  an  indebtedness 
which  the  entire  ralue  of  the  roads  originally  placed  in  the  hands 
of  the  receivers  might  prove  inadequate  to  satisfy.     The  result 

IS  even  worse   than   the  improving  of  a  mortgagor  out   01    his   S6- 

531 


§  551.]         DEBTS  OF   MORTGAGE   TRUSTEES   IN   POSSESSION. 

curity.  The  receivership  was  sought  by  the  Vermont  and  Can- 
ada Company,  in  the  year  1855,  as  a  means  of  obtaining  the  rent 
of  its  own  road,  which  the  Vermont  Central  Company  held  under 
a  lease.  The  receivers,  in  1861,  took  possession  not  only  of  the 
road  of  the  latter  company,  but  of  the  road  of  the  former,  by 
virtue  of  the  lease.  In  1877,  the  creditors  to  whom  were  due  the 
debts  incurred  in  the  management  of  the  property  were  before 
the  court,  asking  for  the  sale  of  both  roads  to  pay  these  debts ; 
and  the  result  may  be,  that  not  only  the  mortgage  creditors  of  the 
Vermont  Central  Company  are  improved  out  of  their  estate,  but 
that  the  Vermont  and  Canada  Company,  which  as  creditor  sought 
to  collect  the  rent  of  its  road,  has  been  improved  out  of  its  own 
road  as  well.1 

551.  Debts  contracted  by  trustees  in  possession  for  com- 
pleting the  road  are  preferred  to  the  lien  of  the  mortgage  under 
which  the  trust  arose,  when  such  completion  was  necessary  in 
order  to  preserve  the  value  of  the  franchise.  The  Hempfield 
Railroad  Company  of  Pennsylvania  issued  coupon  bonds,  and  se- 
cured them  by  mortgage  to  trustees  who  were  authorized  by  the 
deed,  upon  default  in  payment  of  the  coupons,  to  take  possession 
of  the  road  for  six  months,  and  out  of  the  profits  to  pay  the  bond- 
holders. Authority  was  also  given  by  the  deed  to  the  trustees  to 
contract  debts  for  "  preserving,  repairing,  and  maintaining  "  the 
road.  The  company  by  deed  delivered  possession  to  the  trustees 
for  six  months,  and  afterwards  by  deed  continued  the  possession 
until  the  bonds  should  be  paid.  The  trustees  contracted  debts 
to  a  large  amount  for  work  done  and  materials  furnished,  and 
also  completed  the  road  by  laying  down  rails  after  the  road-bed 
had  already  been  constructed  by  the  company.  Upon  a  subse- 
quent foreclosure  sale,  a  master  was  appointed  by  the  court  to 
distribute  the  fund,  and  he  reported  in  favor  of  those  creditors 
whose  claims  had  arisen  during  the  trustees'  possession,  excluding 
the  bondholders  and  creditors  whose  debts  had  been  contracted 

1  Although  there  are  some  cases  of  im-  those  interested  in  the  equity  of  redemp- 
provident  management  of  railroads  by  tion,  yet  there  are  not  a  few  cases  where 
trustees  and  receivers,  and  others,  where  the  management  of  trustees  and  receivers 
they  have  apparently  managed  for  their  has  been  such  as  to  produce  profits  where 
own  benefit  first  of  all,  and  in  the  second  no  profits  had  been  made  before,  or  to  re- 
place for  the  mortgagees  at  whose  instance  store  profits  which  corporate  officers  had 
they  were  appointed,  and  last  of  all  for  failed  to  keep  up. 

532 


RIGHT    OF   TRUSTEES   TO   REPAYMENT.  [§  552. 

before  the  delivery  of  the  road  to  the  trustees  under  the  deed.1 
The  bondholders  having  excepted  to  the  report,  Sharswood,  J.,  at 
nisi  prius,  dismissed  the  exceptions. 

The  iron  for  the  rails  laid  down  by  the  trustees  on  this  road 
they  paid  for  partly  in  cash  and  partly  in  bonds  of  the  company, 
subject  to  redemption  at  par  in  one  year.  The  holder  of  the 
bonds  so  issued  claimed  that  they  were  not  taken  in  payment,  but 
that  the  right  to  redeem  stamped  them  as  collateral  security,  and 
therefore  that  he  was  entitled  to  preference  in  the  payment  of  the 
debt  as  one  contracted  by  the  trustees  in  the  performance  of  their 
trust.     His  claim  was  allowed  and  charged  upon  the  fund.2 

The  right  of  the  trustee  in  possession  to  repayment  of  his  ad- 
vances and  expenses  on  account  of  the  property  takes  priority  of 
the  mortgage  under  which  he  acts,  and  of  the  claims  of  all  subse- 
quent creditors.  He  is  the  owner  of  the  property  at  law,  and  when 
called  upon  to  account  he  may  deduct  out  of  the  trust  property 
whatever  sums  he  had  expended  or  become  liable  for  in  the  dis- 
charge of  his  trust.    His  claim  is  the  first  charge  upon  the  property.3 

552.  A  creditor  or  other  person  not  holding  the  position  of 
trustee  has  no  right  to  be  reimbursed  his  advances  to  protect 
a  corporation  in  preference  to  mortgage  creditors  ;  but  one 
who  does  not  hold  the  legal  title  and  does  not  legally  represent 
the  bondholders  in  his  possession  #nd  management  of  the  prop- 
erty, but  being  a  creditor  and  stockholder  in  a  company  volun- 
tarily advances  money  for  the  payment  of  wages,  rents,  and  other 
purposes  essential  to  prevent  the  immediate  sacrifice  of  the  prop- 
erty, has  no  claim  to  be  repaid  in  preference  to  the  mortgage 
bondholders.  A  company,  formed  for  the  purpose  of  manufactur- 
ing iron,  mortgaged  its  property  and  afterwards  borrowed  money 
from  one  Grissell,  the  former  owner  of  the  works  and  Hun  a 
shareholder  in  the  company,  under  an  agreement  that  all  moneys 
due  to  the  company  were  to  be  received  by  him,  and  these 
moneys,  and  also  the  money  to  be  advanced  by  him,  were  f<» 
be  applied  by  him  in  paying  wages  and  salaries  and  other  out- 
goings for  tin-  business  of  bhe  company,  and  finally  bo  the  repay- 
ment of  his  advances.  Subsequently  tie-  company  resolved  to 
wind  up  voluntarily,  and  an  order  of   court  was  made  for  this 

i  Patterson  v.  Hempfield  R.  R.Co.8a-  '-  Pattenon  v.  Hempficld  R.  B.  Co.  supra. 
preme  Couri  of  Pa.  at  N.    I',  l  Weekly       3  Hall  Coal  Co.  in  ri 

-   .  .  .  » 

Notes  of  Cases,  127.  •'"•' 


§  552.]         DEBTS   OF   MORTGAGE   TRUSTEES  IN   POSSESSION. 

purpose.  Afterwards  Grissell  and  the  liquidators,  with  the  sanc- 
tion of  the  vice  chancellor,  made  an  agreement  for  an  advance  by 
Grissell  of  further  sums  on  similar  terms.  He  accordingly  made 
further  advances  for  the  payment  of  rent,  wages,  taxes,  and  out- 
goings. A  large  balance  remained  due  to  him  when  the  liquida- 
tors sold  the  leasehold  property,  machinery  and  plant  of  the  com- 
pany. Grissell  claimed  the  repayment  of  his  advances  in  carrying 
on  the  business  in  preference  to  the  debenture  holders,  and  the  vice 
chancellor  allowed  the  claim  as  costs  of  preservation.  But  on  ap- 
peal it  was  held  that  the  fund  arising  from  the  sale  belonged  to 
the  debenture  holders  in  priority  to  the  claims  of  Grissell  or  the 
liquidators  for  the  costs  so  incurred.  The  debenture  holders  were 
not  parties  to  the  agreement  with  Grissell,  and  the  sanction  to 
the  agreement  given  by  the  court  did  not  bind  them.  No  debent- 
ure holder  was  summoned  before  the  court,  or  was  asked  whether 
he  approved  the  arrangement.  No  one  represented  the  debenture 
holders,  and  they  were  not  affected  by  anything  that  was  done.1 
James,  L.  J.,  delivering  the  principal  judgment  of  the  court, 
clearly  states  the  rights  of  the  debenture  holders  :  "  It  is  said  that 
the  transaction  was  for  the  benefit  of  the  debenture  holders,  and 
that  if  this  property  had  been  sold  at  that  time,  in  all  probability, 
it  would  have  sold  badly,  and  therefore  it  was  for  their  benefit 
that  the  works  should  be  carried  on.  But  then  the  debenture 
holders  were  the  persons  who  had  a  right  to  express  their  opinion 
whether  the  business  should  be  carried  on  at  their  risk.  Of 
course  as  long  as  the  company  were  minded  to  keep  it  on,  the  de- 
benture holders  might  very  reasonably  be  minded  not  to  interfere 
with  what  their  mortgagors  and  debtors  were  doing,  because  their 
security  —  the  thing  which  constituted  their  security  —  was  still 
remaining  in  esse  to  answer  their  demands.  Therefore  they  had 
no  occasion  to  apply  their  minds  to  the  question  whether  it  would 
be  to  their  benefit  or  not  that  the  works  should  be  carried  on. 
Their  debtors,  who  acted  with  the  sanction  of  the  court,  thought 
it  was  for  their  own  benefit  that  it  should  be  carried  on,  but  that 
left  the  property  still  remaining  liable  to  the  charge." 

The  liquidators  then  claimed  priority  for  their  costs,  expenses, 

and  remuneration  ;  but  the  court  adjudged  that  their  claim  could 

not  be  sustained.     The  same  learned  judge  said  that  no  doubt 

it  is  a  very  hard  case  for  them  that  they  have  had  to  deal  with  an 

1  Regent's  Canal  Iron  Works  Co.  in  re,  L.  R.  3  Ch.  D.  411. 

534 


RIGHT   OF   TRUSTEES   TO   REPAYMENT.  [§  553. 

insolvent  company,  but  they  ought  to  have  looked  into  that  mat- 
ter before  they  incurred  expenses  and  made  themselves  liable  ;  and 
that  they  should  not  have  incurred  disbursements  which  they  had 
no  means  of  reimbursing  themselves.  The  debenture  holders  are 
the  creditors  to  whom  the  property  belonged  ;  they  had  a  specific 
right  to  the  property  for  the  purpose  of  paying  their  debts.  If 
the  property  is  realized  in  the  proceedings  to  which  they  are  par- 
ties they  must  pay  the  costs  of  the  realization,  just  as  they  would 
have  had  to  pay  them  if  they  had  their  own  suit  for  the  purpose 
of  realizing  it.  No  doubt  there  were  costs  of  preservation,  which 
means  that  by  keeping  the  thing  going  for  some  years  the  prop- 
erty ultimately  realized  more  for  the  debenture  holders  than  it 
would  have  otherwise  realized.  But  this  is  merely  a  surmise,  and 
if  true  it  would  really  make  no  difference.  The  services  rendered 
in  that  way  cannot  create  a  charge  against  the  mortgagee.  The 
only  costs  for  the  preservation  of  the  property  with  which  they 
would  be  chargeable  would  be  the  repairing  of  the  property,  pay- 
ing rates  and  taxes,  which  would  be  necessary  to  prevent  any  for- 
feiture, and  the  care  of  the  property.  The  liquidators  in  this  case 
never  paid  anything  of  the  kind.  The  leaseholds,  machinery, 
■  and  plant  were  never  the  subject  of  expenditure  on  the  part  of 
the  liquidators." 

553.  Compensation  of  trustees.1  —  The  Des  Moines  Valley 
Railroad  Company  executed  a  mortgage  upon  its  road  and  lauds, 
which  stipulated,  among  other  things,  that  the  holders  of  any  of 
the  mortgage  bonds  should  have  the  privilege  of  purchasing  any 
of  the  lands  not  required  by  the  company  for  the  necessary  or 
convenient  operation  of  the  road  at  the  then  minimum  price  lixed 
by  the  company,  and  to  pay  therefor  in  bonds  at  their  par  value. 
The  mortgage  also  stipulated  that  the  proceeds  of  the  sales  of 
Lands  should  constitute  a  sinking  fund  for  the  discharge  of  the 
mortgage  debt;  and  that  the  bondholders  should  be  required  (■> 
cancel  the  bonds  so  taken  up,  and  thai  for  services  in  Belling  and 
conveying  the  lands,  and  applying  the  proceeds  to  tin;  sinking 
fund,  the,  trustees  should  receive  two  per  cent,  on  the  amounl  of 
the  bonds  cancelled.  Upon  a  Bubsequenl  foreclosure  of  the  mort- 
gage the  trustees  filed  their  account,  showing  thai   they  had  can- 

1  'in  the  genera]  Bubjecl  of  the  compensation  oi 

§§  910-01 'J;  and  see  §§  527-530. 


§§  554-556.]       DEBTS   OF   MORTGAGE   TRUSTEES   IN   POSSESSION. 

celled  bonds  to  a  very  large  amount  on  which  they  claimed  the 
above  named  commission.  Some  of  the  bondholders  appeared 
and  objected  to  the  allowance  of  two  per  cent,  on  the  face  of  the 
bonds  received  by  them  in  payment  of  lands  sold,  but  the  Su- 
preme Court  of  Iowa  held  that  the  sale  of  lands  and  the  payment 
in  bonds  was  equivalent  to  a  sale  for  cash,  and  that  therefore  the 
trustees  were  as  much  entitled  to  this  commission  upon  the  par 
value  of  bonds  received  in  exchange  for  lands  and  cancelled  as 
they  were  upon  bonds  cancelled  upon  purchase  with  the  proceeds 
of  cash  sales  of  the  lands,  the  mortgage  recognizing  no  distinction 
between  the  modes  of  payment.1 

554.  The  funds  in  the  hands  of  a  receiver  are  chargeable 
with  the  retainer  and  professional  services  of  an  attorney 
employed  by  the  trustees  under  a  mortgage  of  a  railway  to 
foreclose  the  mortgage,  although  the  suit,  without  the  fault  of 
the  attorney,  was  not  prosecuted  with  effect,  and  the  funds  in  the 
hands  of  the  receiver  have  been  obtained  from  a  new  suit,  prose- 
cuted by  other  trustees  ;  as  for  instance  where  the  prosecution 
of  the  first  suit  was  prevented  by  the  outbreak  of  the  civil  war, 
and  the  trustees  who  authorized  the  suit  having  died,  new  trus- 
tees were  appointed  upon  the  termination  of  the  war,  who  com- 
menced a  new  foreclosure  suit.2 

555.  Trustees  managing  a  railroad  are  not  liable  for  the 
use  and  occupation  of  land  outside  the  location  of  the  rail- 
road, in  the  absence  of  any  evidence  of  a  demise,  whether  the  use 
was  by  permission  of  the  owner  or  not.  A  contract,  express  or 
implied,  is  necessary  to  sustain  the  action.3 

II.  Liability  of  Trustees  operating  a  Railroad  as  Common  Car- 
riers. 

556.  Trustees  operating  a  railroad  for  the  benefit  of  the 
bondholders  are  regarded  as  owners  of  the  road,  so  far  as  to 
render  themselves  liable  as  common  carriers  for  loss  or  damage 
to  merchandise,  or  for  damages  to  passengers  occasioned  by  the 

i  Gilman  v.  Des  Moines  Valley  R.  R.     Henderson  R.  R.  Co.  93  U.  S.  352  ;  S.  C. 
Co.  41  Iowa,  22.  9  Am.  Railway  Rep.  361. 

2  Cowdrey    v.   Galveston,   Houston    &        3  Central  Mills  Co.  v.  Hart,  124  Mass. 

123. 
536 


LIABILITY    OF   TRUSTEES   AS   COMMON    CARRIERS.  [§  556. 

negligence  of  their  servants  and  employees.  Thus,  the  trustees  of 
the  second  mortgage  bondholders  of  the  Northern  Railroad  Com- 
pany having  foreclosed  their  mortgage,  by  permission  of  court, 
purchased  the  mortgaged  property  at  the  sale,  and  proceeded  to 
operate  the  road  for  the  benefit  of  the  bondholders.  They  under- 
took to  transport  a  large  quantity  of  grain,  -which  was  burned  on 
the  road.  In  a  suit  against  them  for  the  loss  of  the  goods,  they 
were  held  liable  as  common  carriers.1  The  fact  that,  by  the  de- 
cree authorizing  the  trustees  to  purchase  at  the  foreclosure  sale, 
the  court  undertook  to  give  directions  as  to  the  mode  of  execut- 
ing the  trust  in  respect  to  a  subsequent  sale,  and  in  respect  to 
operating  the  road,  was  held  not  to  change  the  character  in 
which  they  held  the  property,  and  make  them  receivers  of  the 
property.  They  continued  to  hold  the  property  as  trustees,  and 
as  such  held  the  legal  title  to  the  property,  and  received  the  in- 
come and  profits  of  it  for  the  benefit  of  their  cestuis  que  trust.2 

The  same  liability  attaches  to  a  mortgage  trustee  who  has  en- 
tered into  possession  of  a  railroad  in  pursuance  of  the  provisions 
of  the  mortgage,  or  in  pursuance  of  a  statute  and  decree  of  court, 
and,  before  completing  a  foreclosure,  operated  the  road  for  the 
benefit  of  the  bondholders.3  In  Connecticut,  by  statute,  such  trus- 
tee is  declared  not  to  be  personally  liable  for  any  cause  or  injury 
arising  from  the  operation  of  such  road,  except  for  his  wilful  mis- 
management, or  for  any  contracts  made  by  him  as  such  trustee  ; 
but  all  the  trust  property  in  his  charge  is  liable  for  the  acts  and 
proceedings  of  such  trustee,  in  the  execution  of  his  trust,  to  the 
extent  of  the  interest  of  the  creditors,  for  whose  benefit  lie  acts; 
and  any  proceedings  for  the  purpose  of  making  such  property  lia- 
ble should  be  brought  against  such  trustee,  describing;  him  as 
such.4  Under  a  statute  authorizing  trustees  in  possession  to  ap- 
ply the  income  of  the  road  to  the  payment  of  the  ".running  and 
operating  expenses  of  the  road,"  a  claim  for  negligently  injuring 
property  at  a  highway  crossing  would  be  properly  included.6 

i  Ro-ers  v.   Wheeler,  43   N.    V.  598;  *  G.  S.  1875,  p.  383,  §  85 ;   G.  8.  1866, 

Barter  v.  Wheeler,  49  N.  II.  9  ;  Sprague  p.  196,  §  513. 

ith,  29  Vt  421.  6  Smith  v.  Eastern  B.  R  Co   124  Mam. 

2  Barter  v.  Wheeler,  supra.  154. 

15  Lamphearv.  Buckingham,  33  Conn. 
•s.n. 

587 


CHAPTER    XIX. 


THE    PRIORITY   OF   RAILROAD    MORTGAGES    NOT    AFFECTED    BY 
EQUITIES   ARISING   SUBSEQUENTLY. 


I.  Equities  of  employees,  557-561. 

II.  Equities  of  contractors  and  material- 
men, 562-565. 


III.  Equities  under  subsequent  contracts 
and  leases,  566-569. 

IV.  Equities  under  judgments  against  re- 
ceivers, 570-572. 


I.  Equities  of  Employees. 

557.  General  statement.  —  Railroad  bondholders  have,  within 
the  last  few  years,  sometimes  experienced  much  surprise,  to  say 
nothing  of  other  and  stronger  emotions,  at  finding,  in  the  course 
of  events,  that  mortgage  liens,  which  were  nominally  and  actu- 
ally, at  the  time  they  were  created,  first  liens  upon  the  mortgaged 
property,  have  been  adjudged  by  the  courts  to  be  subject  to 
other  claims  subsequently  incurred.  They  have  not  merely  seen 
debts  incurred  by  receivers  and  trustees  in  the  management  of 
the  property  accorded  a  priority  over  their  mortgages,  but  they 
have  also  seen  the  same  priority  accorded  to  the  claims  of  labor- 
ers and  mechanics,  and  to  all  that  undefined  indebtedness  of  a 
railroad  company,  known  as  floating  debts.  It  is  proposed  to  ex- 
amine, in  the  present  chapter,  the  various  ways  in  which  it  has 
been  sought  to  supersede  the  priority  of  railroad  mortgages  by 
subsequent  equities. 

At  the  outset  it  is  proper  to  state  as  a  settled  legal  principle, 
that  a  fixed  legal  right  under  a  mortgage  cannot  be  impaired  by 
any  equities  subsequently  arising.  Statutes  in  force  at  the  time 
of  execution  of  a  mortgage  may  give  rights  as  against  the  mort- 
gagee to  other  persons,  under  claims  subsequently  arising  ;  but  in 
such  case  the  statutes  become  a  part  of  the  original  mortgage  con- 
tract. Subsequent  legislation  could  not  affect  the  priority  of  an 
existing  mortgage.  Even  Congress  cannot  limit  the  tolls  of  a 
canal  company  whose  revenues  are  pledged  to  secure  its  bonds, 
538 


EQUITIES    OF   EMPLOYEES.  [§  558. 

so  as  to  impair  the  rights  of  the  bondholders.  Mr.  Justice  Mil- 
ler, construing  an  act  relating  to  the  Louisville  and  Portland  Ca- 
nal Company,  emphatically  said  :  "  I  have  no  hesitation  in  say- 
ing, that  that  part  of  it  which  so  limits  the  tolls  is  void,  for  the 
plain  reason  that  it  is  a  legislative  attempt  to  destroy  vested 
rights  and  a  taking  of  private  property  for  public  use  without 
due  compensation."  x 

The  claims  of  employees  of  a  railroad,  due  at  the  time  it  is 
placed  in  the  hands  of  a  receiver,  are,  in  New  Jersey,  provided 
for  by  a  statute,2  which  makes  them  a  lien  upon  all  unincumbered 
personal  effects,  and  all  moneys  which  may  be  transferred  to  the 
receiver  at  the  time  of  his  entering  upon  his  duties,  but  limits  the 
payments  to  not  more  than  two  months'  wages.  Under  such  act, 
however,  the  claims  of  employees  are  subject  to  incumbrances 
upon  such  property  existing  when  the  act  was  passed.  The  lien 
cannot  be  extended  beyond  the  provisions  of  the  act,  which, 
though  it  will  receive  construction,  cannot,  of  course,  be  so  con- 
strued as  to  diminish  or  impair  the  obligation  or  lien  of  a  previous 
levy  of  an  execution,  or  of  a  previous  mortgage.3 

558.  The  most  reasonable  ground  upon  which  a  chancery- 
court  can  order  a  receiver  to  pay  the  wages  of  employees  of  a 
railroad  company,  due  at  the  time  the  road  is  placed  in  the  re- 
ceiver's hands,  is  that  taken  by  the  Court  of  Appeals  of  Kentucky, 
in  the  recent  case  of  Douglass  v.  CIine.i  The  Louisville,  Cincin- 
nati, and  Lexington  Railroad  Company  executed  a  mortgage  to  a 
trustee,  which  authorized  him,  upon  default,  to  take  possession  of 
the  property,  and  by  himself  and  agents,  or  by  a  receiver  of  court, 
to  use  and  operate  the  road  and  receive  the  earnings  and  income 
of  it,  or  to  have  the  mortgaged  property  sold  and  conveyed  under 
a  decree  of  court.  No  specific  lien  was  given  upon  the  earnings 
of  the  road  while  held  and  operated  by  the  company  itself. 
Upon  default,  the  trustee,  instead  of  taking  possession  of  the  road 
himself,  obtained  the  appointment  of  a  receiver.     Shortly  after- 

1   United  States  v.  Louisville  &  Portland  -  Feh.    12,    1874,    Actt    1874,    p.    12;  9 

Canal  Co.  4  Dill.  601.    Judge  Dillon,  in  Rev.  1877,  p.  948,  §  181. 

note  to  this  case,  says,  that  in  England  :i  Williamson  v.  N-  •'   Southern    R   R' 

parliament  would   possess  this  power,  as  Co.  28  N.  J.  Eq   277,800 

ii  by  the  case  of  Brown  v.  Mayor,  *  12  Bush,  608.    And  see  Newport  & 

&c.  of  London  9  C.  B.  (N.  8.)  726.  Cincinnati    Bridge  Co  I glass,   l^ 

Bnsh,  878. 


§  559.]       MORTGAGES   NOT   AFFECTED    BY    SUBSEQUENT   EQUITIES. 

wards,  the  employees  of  the  road,  to  whom  wages  were  due  at  the 
time  of  the  appointment,  obtained  an  order  from  the  vice  chan- 
cellor, directing  the  receiver  to  pay  them  the  amounts  due  them 
out  of  the  net  earnings  of  the  road ;  and  this  order  was  sustained 
upon  appeal.  The  decision  of  the  court  had  special  reference  to 
the  nature  of  a  mortgage,  as  determined  by  the  Code  of  Proced- 
ure of  that  state,  under  which  the  mortgagee,  although  invested 
with  the  legal  title,  cannot  recover  possession  in  an  action  at  law. 
Having  no  legal  right  to  recover  possession  simply  by  reason  of 
holding  the  mortgage  title,  his  right  of  possession  must  rest  upon 
express  contract,  or  else  must  be  sought  in  equity.  But  in  this 
case  the  trustee,  either  because  the  express  contract  in  the  mort- 
gage could  not  be  enforced,  or  because  he  did  not  see  fit  to  enforce 
it,  sought  his  remedy  in  equity,  and  obtained  the  appointment  of 
a  receiver.  It  was  then  insisted,  in  behalf  of  the  mortgage  bond- 
holders, that  inasmuch  as  it  was  made  to  appear  to  the  satisfaction 
of  the  chancellor  that  he  ought  to  take  possession  of  the  mort- 
gaged property,  he  was  bound  to  do  so  unconditionally,  and  that 
he  had  no  discretion  as  to  the  application  of  the  fund  that  might 
come  into  the  receiver's  possession,  but  was  bound,  as  matter  of 
law,  to  apply  this  fund  to  the  extinguishment  of  the  lien  debts  in 
the  order  of  their  priority.  But  the  court  declared,  that,  while 
the  mortgagees  had,  in  equity,  a  perfect  right  to  have  the  prop- 
erty protected  and  preserved  while  the  actions  to  enforce  their 
mortgages  were  pending,  yet  the  power  of  the  court  to  do  this 
through  the  instrumentality  of  a  receiver  is  discretionary  in  its 
nature  ;  that  the  right  of  the  mortgagees  to  have  the  fund  raised 
by  the  receiver  applied  for  their  security  as  against  the  general 
unsecured  creditors  of  the  mortgagor  is  equitable  only,  and,  there- 
fore, that  the  chancellor  is  not  bound  to  enforce  it  under  all  con- 
tingencies, but  may,  in  proper  cases,  attach  to  its  enjoyment  rea- 
sonable conditions,  and  may  do  this  either  in  the  order  appointing 
the  receiver,  or  by  an  order  subsequently  made. 

559.  The  court  lay  stress  upon  the  meritorious  character 
of  the  claims  of  the  employees  ;  upon  the  fact  that  their  ser- 
vices in  repairing  and  operating  the  road  had  preserved  the  prop- 
erty, and  enabled  the  company  to  retain  its  business  and  the  pub- 
lic confidence,  and  therefore  had  resulted  in  substantial  advantage 
to  the  mortgagees,  who  are  insisting  that  the  payment  of  the  em- 
540 


EQUITIES    OF   EMPLOYEES.  [§  559. 

ployees  out  of  a  fund  to  which  they  have  no  legal  or  contract 
right,  and  which  they  can  reach  only  through  the  intervention  of 
the  chancellor,  is  an  abuse  by  that  officer  of  his  equitable  discre- 
tion. It  was  to  the  interest  of  the  lien-holders,  they  say,  that  the. 
receiver  should  be  enabled,  pending  the  litigation,  to  operate  the 
roads  of  the  company  successfully  and  profitably.  To  secure  im- 
mediate success  in  this  regard,  itw  as  desirable,  if  not  indispen- 
sably necessary,  that  he  should  be  enabled  to  retain  in  his  service 
the  force  of  employees  he  found  in  the  service  of  the  company 
when  he  took  possession  of  its  roads.  One  of  the  grounds  of  the 
application  for  a  receiver  was  the  discontent  upon  the  part  of  the 
employees,  resulting  from  the  non-payment  of  their  wages.  "  It 
was  the  duty  of  the  chancellor  to  allay  this  discontent,  and  to 
assist  his  receiver  in  securing  the  services  of  these  people,  and 
thus  insure  the  profitable  management  and  operation  of  the  roads 
in  his  hands,  if  this  could  be  accomplished  by  an  act  manifestly 
just,  certainly  within  the  scope  of  his  judicial  powers,  and  to 
which  the  appellants  ought  not,  in  good  conscience  and  fair  deal- 
ing, to  object."  Moreover,  the  court  declared,  it  is  not  strictly 
accurate  to  say  that  the  employees  bear  to  the  mortgagees  the 
same  relation  as  that  borne  them  by  other  general  creditors  of  the 
insolvent  company.  "  The  mortgagees  accepted  their  securities 
with  knowledge  that  the  railroad  company,  though  technically 
speaking  a  private  corporation,  was  under  obligations  to  the  state 
to  render  certain  important  public  services.  They  knew  that  the 
railroads  were,  in  a  certain  sense,  public  highways,  and  that  who- 
ever owned  them,  or  held  them  in  pledge,  was  obliged  to  see  that 
they  were  at  all  times  so  operated  as  to  subserve  the  public  con- 
venience. The  interest  the  public  has  in  the  construction  and 
successful  operation  of  lines  of  railway  has  influenced  the  courts 
to  treat  railroad  mortgagees  as  possessing  rights  superior  to  those 
of  beneficiaries  under  mortgages  covering  other  kinds  of  property  ; 
and  courts  of  equity  have  not  hesitated  to  interfere  Eor  their  pro- 
tection in  cases  in  which  other  mortgagees  would  have  been  left 
to  their  remedy  at  law It  was  through  the  labor  ami  ser- 
vices of  these  employees,  performed  and  rendered  after  the  rail- 
road company  had  become  notoriously  unable  to  meet  its  indebt- 
edness, and  during  a  period  when  the  mortgagees  either  could  not 
or  would  not  interfere  to  proteel  ami  preserve  their  mortgage 
security,  that  the  company's  roads  were  operated  ami  its  duties  t" 

541 


§  559.]      MORTGAGES   NOT   AFFECTED   BY   SUBSEQUENT   EQUITIES. 


the  public  discharged  ;  and,  as  we  have  already  seen,  it  was  by 
this  labor  and  these  services  that  the  mortgaged  property  during 
this  period  was  preserved  and  kept  in  repair.  It  is  plain,  there- 
fore, that  the  debts  due  to  the  appellees  were  contracted  for  labor 
which  resulted  in  substantial  advantage  to  the  parties  who  are 
here  insisting  that  their  payment  out  of  a  fund  to  which  said 
parties  have  no  legal  or  contract  claim,  and  which  they  can  reach 
only  through  the  intervention  of  the  chancellor,  is  an  abuse  by 
that  officer  of  his  equitable  discretion." 

In  conclusion,  the  court  remark  that  it  will  not  necessarily  fol- 
low from  its  decision  that  all  the  general  creditors  of  the  railroad 
company  will  be  able  to  assert  successfully  their  right  to  be  paid 
out  of  the  fund  held  by  the  receiver ;  that  each  claim  must  rest 
upon  its  own  peculiar  merits  ;  and  that,  as  the  mortgagees  have 
primd  facie  an  equitable  claim  to  the  whole  fund,  the  onus  will 
be  upon  each  general  creditor  to  establish  a  superior  right  upon 
his  part.1 


1  Mr.  Justice  Cofer  delivered  a  dissent- 
ing opinion,  forcibly  criticising  the  opinion 
of  the  majority  of  the  court.  He  claimed 
that  the  maxim  that  "  He  who  seeks  equity 
must  do  equity "  had  no  application  to 
this  case;  that  the  mortgagees  owed  no 
equity  to  the  railroad  company,  and  owed 
none  to  the  employees  of  the  company ; 
that  the  effect  of  the  application  of  the 
maxim  to  this  case  is  that,  if  A.  asks  the 
intervention  of  the  chancellor  in  his  behalf 
against  B.,  the  chancellor  may,  as  the  con- 
dition upon  which  he  will  grant  the  relief 
asked,  require  A.  to  render  to  C.  an  equity 
due  him  from  B. ;  that  this  is  not  the 
meaning  of  the  maxim  ;  but  that  it  means 
that  a  party  seeking  the  aid  of  equity  must 
do  equity  to  him  against  whom  he  seeks 
relief  in  reference  to  the  subject  matter  in- 
volved in  the  litigation.  He  claimed  that 
the  mortgagees  had  liens  on  the  earnings 
of  the  property  while  in  the  hands  of  the 
receiver  by  express  contract,  which  the 
court  was  bound  to  enforce;  and,  more- 
over, he  claimed  that,  aside  from  any  con- 
tract, by  well  established  rules  of  equity, 
mortgagees  have  a  lien  upon -the  earnings 
of  the  property  in  the  hands  of  a  receiver, 
pending  a  suit  for  foreclosure   and  sale, 

542 


and  that  the  earnings  are  a  part  of  their 
security  of  which  the  chancellor  has  no 
power  to  deprive  them.  In  conclusion  he 
says  :  "  I  have  been  unable  to  discover  the 
line  that  is  to  separate  the  claim  of  the  em- 
ployees from  the  claim  of  other  unsecured 
creditors.  Nor  am  I  able  to  discern  the 
principle  that  is  to  distinguish  the  claim 
of  the  employees  of  a  railroad  company  to 
be  paid  in  preference  to  mortgagees  from 
the  claim  of  any  other  class  of  laborers,  to 
be  paid  in  like  manner  out  of  mortgaged 
property  upon  which  they  have  bestowed 
labor  for  which  they  have  not  been  paid. 
If  these  appellees  have  any  equity  to  be 
paid  out  of  the  earnings  in  the  receiver's 
hands  for  labor  done  before  his  appoint- 
ment, because  they  bestowed  their  labor  on 
the  road,  and  thereby  kept  it  up,  why  shall 
not  the  material-man  who  furnished  arti- 
cles indispensable  to  the  operating  of  the 
road  be  paid  also  ?  If  the  men  who  fur- 
nished necessary  material  are  entitled  to 
be  paid,  upon  what  principle  of  law  or 
morals  shall  the  man  who  furnished  money 
to  make  cash  purchases  be  refused  1  And 
if  these  are  to  be  paid  out  of  the  earnings, 
to  the  exclusion  of  the  mortgagees,  there 
will  remain  no  debts  to  be  paid  but  the 


EQUITIES   OF   EMPLOYEES.  [§  560. 

An  important  element  in  this  decision  is  the  inability  of  a 
mortgagee,  under  the  present  Code  of  Kentucky,  to  recover  pos- 
session of  the  mortgaged  property  after  default  by  an  action  at 
law.  It  would,  therefore,  be  no  authority  in  states  where  the 
mortgagee's  right  of  possession  remains  as  it  was  at  the  common 
law.  The  argument  drawn  from  expediency,  and  from  the  meri- 
torious nature  of  the  claims  of  employees,  is  one  which  might  well 
be  considered  by  the  mortgagees  themselves,  but  is  entitled  to  no 
consideration  from  the  court,  as  against  the  positive  legal  rights 
of  mortgagees.  There  are  numerous  instances  in  which  the  mort- 
gagees themselves  have  voluntarily  assumed  the  payment  of 
wages,  and  other  floating  debts  of  railroad  companies,  at  the  time 
of  taking  possession.  This  is  their  own  affair,  and  is  simply  a 
waiver  of  their  own  legal  rights.  But  if  they  do  not  choose  of 
their  own  accord  to  do  this,  the  courts  have  no  right  to  compel 
them  to  give  priority  to  unsecured  claims. 

It  is  true,  however,  that  the  general  result  arrived  at  in  this 
case  is  supported  by  a  decision  by  Judge  Wellford,  in  the  Circuit 
Court  of  the  city  of  Richmond.1  The  grounds  of  the  decision  are 
that  the  officers  of  the  insolvent  company,  having  the  right  of 
possession,  and  being  allowed  by  the  mortgage  creditors  to  remain 
in  possession  long  after  the  company's  default  had  become  notori- 
ous, might  be  in  some  sense  regarded  as  the  agents  of  the  mort- 
gagees in  operating  the  road  ;  and  that,  at  any  rate,  the  claims  of 
employees,  due  at  the  time  the  mortgagee  obtained  the  appoint- 
ment of  a  receiver,  are  of  such  an  equitable  nature  that  the  court 
will  require  them  to  be  satisfied  out  of  the  subsequent  earnings  of 
the  road,  or  out  of  the  trust  property. 

560.  It  sometimes  happens  that  mortgage  creditors  find  it 
a  matter  of  policy  to  assume  the  payment  of  certain  general 
debts  of  railroad  corporations,  and  to  consent  to  the  entry  of  de- 
crees requiring  their  receivers  to  pay  such  debts  out  of  the  receipts 
of  the  road  or  from  the  proceeds  of  sales  of  the  mortgaged  prop- 
erty.2  The  claims  of  laborers  and  employees  more  frequently 
than  any  others  are  so  provided  for.     Aside  from  the  equitable 

mortgage  debts,  and,  these  being  postponed  l  Duncan  v.  Chesapeake  &  Ohio  R.  R, 

to  all  others,  it  will   result   that  the  only  Co.  9  Am.  Ry.  Rep.  886. 

persons  not  secured  arc  those  who  alone  -  Bee  4  Central  L.  J.  pp. 458,  544. 

had  taken  security  for  their  dehts." 

543 


§  560.]       MORTGAGES   NOT   AFFECTED   BY    SUBSEQUENT    EQUITIES. 

consideration  that  their  labor  has  benefited  the  property,  there  is 
the  practical  consideration  that  it  is  generally  necessary  or  at  least 
desirable  that  the  receivers,  and  after  them  the  purchasers,  should 
continue  the  operation  of  the  roads  by  the  aid  of  the  services  of  the 
same  persons.  Sometimes  mortgage  creditors  even  find  it  to  their 
advantage  to  compromise  the  claims  of  other  general  creditors. 
Delay  in  obtaining  the  appointment  of  receivers,  and  through 
them  the  possession  of  the  property,  may  be  avoided ;  and  such 
delay  is  a  serious  matter  when  a  road  extends  through  several 
states,  and  the  aid  of  the  courts  of  each  must  be  sought  and  ob- 
tained against  the  active  efforts  of  creditors.  Such  considerations 
doubtless  led  the  mortgage  creditors  of  the  Atlantic  and  Great 
Western  Railway  Company  to  consent  that  the  decree  appointing 
a  receiver  of  the  road  should  provide  for  the  payment,  out  of  the 
net  earnings  of  the  road,  of  claims  for  materials  and  supplies  and 
of  arrearages  owing  to  the  laborers  and  employees  of  the  company 
"  for  labor  and  services  actually  done  in  connection  with  that  com- 
pany's railways."  Under  this  decree  Jeremiah  S.  Black,  Esq., 
claimed  payment  of  $5,000  for  professional  services  as  counsel  for 
the  company,  rendered  prior  to  the  appointment  of  the  receiver. 
The  referee  to  whom  the  claim  was  referred  found  it  to  be  reason- 
able in  amount,  but  that  the  claimant  was  not  included  in  the 
class  provided  for  in  the  order  ;  that  the  word  "  employees,"  as 
there  used,  included  only  those  persons  who  had  been  in  the  stated 
and  regular  employment  of  the  company.  The  Supreme  Court 
of  New  York  also  took  this  view  of  the  claim,  and  disallowed  it.1 

The  Court  of  Appeals,  however,  reversed  this  decision  and  sus- 
tained the  claim.2  The  claimant  was  considered  an  employee 
who  had  rendered  services  in  connection  with  the  company's  rail- 
ways within  the  terms  of  the  order.  Whether  he  should  be  so  re- 
garded or  not  was  a  question  as  to  the  intent  of  the  order,  and  it 
was  regarded  as  more  probable,  from  the  terms  of  the  order,  that 
the  intent  was  to  include  rather  than  exclude  the  debt  of  the 
claimant.  This  intent  was  moreover  regarded  as  established  by 
evidence  as  to  the  sense  in  which  the  parties  used  the  words,  and 
by  the  circumstances  of  the  case.  Debts  for  materials  and  supplies 
were  protected,  and  why  might  it  not  be  supposed  that  the  claim- 
ant's demand  was  regarded  to  be  as  just  and  equitable  as  those, 

1  Gurney  u.  Atlantic  &  Great  Western  2  S.  C.  58  N.  Y.  358.  See  24  N.  Y.  482. 
Ey.  Co.  2  Thomp.  &  C.  (N.  Y.)  446. 

544 


EQUITIES   OF   CONTRACTORS   AND   MATERIAL-MEN.      [§§  561,  562. 

especially  under  the  circumstances  referred  to  ?  The  mortgage 
creditors,  by  making  these  concessions,  gained  what  they  regarded 
a  great  advantage,  —  the  immediate  appointment  of  a  receiver ; 
and  the  order  should  be  liberally  construed  in  favor  of  the  cred- 
itors, who  are  presumed  to  have  assented  to  it  and  relied  upon  it 
for  the  payment  of  their  debts.1 

Notwithstanding  the  force  of  these  views,  upon  which  the  ma- 
jority of  the  court  based  its  decision,  it  may  well  be  questioned 
whether  the  mortgagees  in  consenting  to  this  order  supposed  that 
any  other  than  the  usual  meaning  would  be  attached  to  the  words 
"  laborer  "  and  "  employee  ;  "  and  the  fact  that  three  of  the 
judges  of  the  Court  of  Appeals  dissented  from  the  allowance  of 
the  claim  at  least  weakens  the  authority  of  the  decision. 

561.  In  no  case  has  any  one  of  the  federal  courts  allowed 
claims  for  supplies  or  for  labor  in  preference  to  existing  mort- 
gages when  the  mortgagees  have  not  consented  to  such  allowance. 
In  one  case,  indeed,  after  supply  claims  and  other  floating  debts 
to  the  amount  of  $700,000  had  been  audited  and  paid  by  the  re- 
ceivers with  the  consent  of  the  parties  in  interest,  objection  was 
finally  made  to  a  similar  claim  of  small  amount  presented  at  the 
eleventh  hour,  when  Judge  Treat,  of  the  Circuit  Court,  followed 
the  settled  rule  of  law  and  rejected  the  claim.2  It  does  not 
matter  at  how  recent  a  period  before  the  receivers  took  possession 
the  supplies  were  furnished,  or  how  permanent  in  character  they 
may  be,  the  court  cannot  order  them  to  be  paid  if  the  beneficiaiu.s 
under  the  mortgage  object. 

II.  Equities  of  Contractors  and  Material-men. 

562.  It  has  sometimes  been  sought  to  establish  equities  in 
favor  of  those  who  have  furnished  material  or  money  for 
building  or  repairing  of  railroads,  on  the  ground  that  the  prop- 
erty has  thus  been  conserved  and  rendered  capable  of  profitable 
use.  This  is,  in  fact,  an  attempt  to  apply  t<>  railroads  the  princi- 
ple adopted  by  the  civil  and  maritime  laws  of  awarding  priority 
to  the  last  creditor  who  furnishes  necessary  repairs  and  supplies 
to  a  vessel.     Thus,  in  Galveston  /.'.  /.'.  Co.  v.  Cowdreyy9  a  person 

1  Garney  v.  Atlantic  &  Great.  Western        -  Ketchum  v.  Pacific   II.  EL  Co.  •»   < '. 
Ry.  Co.  58  X.  V.  858,  per  Church,  C.  J.        L.  .J.  458,  -159. 

a  11  Wall.  459,  I 

85  545 


§  563.]       MORTGAGES   NOT    AFFECTED   BY   SUBSEQUENT   EQUITIES. 

who  had  furnished  the  iron  laid  upon  a  portion  of  the  road  claimed 
therefor  an  equitable  lien  in  preference  to  an  existing  mort- 
gage: first,  because  the  mortgage  covered  the  iron  only  as  after- 
acquired  property,  and  upon  the  principle  of  equitable  estoppel, 
which  should  yield  when  it  comes  in  conflict  with  a  superior 
equity ;  and,  secondly,  because  his  property  applied  to  the  road 
had  rendered  it  capable  of  being  operated,  when  it  otherwise  could 
not  have  been  used.  The  Supreme  Court  of  the  United  States 
denied  the  claim  on  both  points,  declaring  that  the  mortgage 
attached  to  the  property  as  soon  as  it  was  acquired,  and  that  the 
principle  of  maritime  law  contended  for  had  no  application.  Mr. 
Justice  Manning,  referring  to  this  case,  in  giving  the  decision  of 
the  Supreme  Court  of  Alabama,  in  the  recent  case  of  Meyer  v. 
Johnston,1  with  reference  to  the  latter  principle,  said  :  "  A  ship 
far  from  home,  in  distress  and  without  resource,  must  perish,  and 
perhaps  her  crew  with  her,  if  a  bottomry  bond  given  then  for  re- 
pairs and  supplies  shall  not  have  precedence  of  other  liens  upon 
the  vessel.  But  the  court  does  not  consider  a  railroad  on  terra 
firma  so  beyond  the  reach  of  help  from  those  who  own  it,  or  are 
concerned  in  it,  as  to  justify  the  adoption,  in  such  a  case,  of  the 
rule  relating  to  a  ship  abroad,  and  about  to  perish." 

Accordingly  the  court,  in  this  case,  refused  to  give  precedence 
to  the  claim  of  a  contractor  for  repairing  and  completing  a  rail- 
road, although  by  contract  with  the  company  he  was  to  have  pos- 
session of  the  property  until  his  claims  were  paid. 

563.  A  mortgage  by  a  railway  company  of  their  "  road,  built 
and  to  be  built,"  has  precedence,  even  as  regards  the  unbuilt 
part,  of  the  claim  of  a  contractor  who  has  himself  furnished  a 
portion  of  the  road,  under  an  agreement  that  he  should  retain 
possession  of  the  road,  and  apply  its  earnings  to  the  liquidation  of 
the  debt  due  him,  and  who  has,  in  accordance  with  such  agree- 
ment, taken  possession  of  the  road,  and  retained  it.  The  Supreme 
Court  of  the  United  States  so  held  upon  a  bill  filed  for  the  fore- 
closure of  such  a  mortgage,  which  had  been  duly  recorded  several 
months  before  the  contract  for  building  the  road  was  made.2 
Said  Mr.  Justice  Clifford:    "All  of  the  bonds,  except  those  sub- 

1  53  Ala.  237,  345.  2  Dunham  v.  Cincinnati,  Peru,  &c.  Ry. 

Co.  1  Wall.  254. 
546 


EQUITIES   OF   CONTRACTORS   AND   MATERIAL-MEN.         [§  564. 

sequently  delivered  to  the  contractor,  had  long  before  that  time 
been  issued,  and  were  in  the  hands  of  innocent  holders.  The 
contractor,  under  the  circumstances,  could  acquire  no  greater  in- 
terest in  the  road  than  was  held  by  the  company.  He  did  not 
exact  any  formal  conveyance ;  but,  if  he  had,  and  one  had  been 
executed  and  delivered,  the  rule  would  be  the  same.  Registry  of 
the  first  mortgage  was  notice  to  all  the  world  of  the  lien  of  the 
complainant ;  and,  in  that  point  of  view,  the  case  does  not  even 
show  a  hardship  upon  the  contractor,  as  he  must  have  known, 
when  he  accepted  the  agreement,  that  he  took  the  road  subject 
to  the  rights  of  the  bondholders.  Acting  as  he  did,  with  a  full 
knowledge  of  all  the  circumstances,  he  has  no  right  to  complain 
if  his  agreement  is  less  remunerative  than  it  would  have  been  if 
the  bondholders  had  joined  with  the  company  in  making  the  con- 
tract. No  effort  appears  to  have  been  made  to  induce  them  to 
become  a  party  to  the  agreement,  and  it  is  now  too  late  to  remedy 
the  oversight.  Conceding  the  general  rules  of  law  to  be  as  here 
laid  down,  still  an  attempt  is  made  by  the  respondents  to  main- 
tain that  railroad  mortgages  made  to  secure  the  payment  of  bonds, 
issued  for  the  purpose  of  realizing  means  with  which  to  construct 
the  road,  stand  upon  a  different  footing  from  the  ordinary  mort- 
gages to  which  such  general  rules  of  law  are  usually  applied." 
But  the  court  say,  that,  although  some  authorities  seem  to  favor 
the  supposed  distinction,  the  argument,  in  their  view,  is  not 
sound,  and  the  weight  of  judicial  determination  is  greatly  the 
other  way. 

564.  The  order  of  priority  of  two  or  more  railway  mort- 
gages is  not  affected  by  the  fact  that  a  part  of  the  road  was 
wholly  built  by  money  raised  by  means  of  the  junior  mort- 
gage. —  The  giving  of  priority  to  the  last  creditor  is  a  rule  which 
is  applicable  only  to  marine  cases,  which  stand  on  a  particular 
reason.  The  rule,  Qui  prior  est  tempore,  potior  est  jure,  gov- 
erns as  to  the  priority  of  mortgages  at  common  law.1  In  a  re- 
cent case  before  the  Supreme  Court  of  Alabama,2  an  attempt  was 
made  to  reverse  the  order  of  priority  of  mortgages,  upon  the 
ground  that  the  prior  bondholders  could  equitably  claim  only  the 
value  of  the   railroad  and  its  appurtenances  in  the  condition  they 

1  Galveston   R.  U.  Co.  v.  Cowdrey,  U       2  Meyer  v.  Johnston,  53  Ala.  237. 
Wall.  459,  482. 

547 


§  565.]       MORTGAGES   NOT    AFFECTED   BY   SUBSEQUENT   EQUITIES. 

were  in  before  the  road  was  reconstructed  and  completed  by  cap- 
ital furnished  for  that  purpose  under  a  subsequent  mortgage.  It 
was  urged  that,  if  this  expenditure  had  not  been  made,  a  Court 
of  Equity  would  have  authorized  a  lien  upon  the  property  for  the 
purpose  of  making  it  available ;  and,  therefore,  the  court  should 
not  hesitate  to  approve  and  ratify  what  had  been  done  volunta- 
rily, and  to  protect  those  who  had  furnished  money  for  the  pres- 
ervation and  life  of  the  road.  But  the  court  regarded  it  as  well 
settled,  that  a  prior  mortgagee  could  not  be  divested  of  his  lien 
in  this  way  ;  and  that  a  junior  mortgage  could  not,  by  force  of 
any  lien  for  repairs,  be  given  precedence  of  a  senior  one. 

A  junior  mortgagee  has  no  more  right  than  the  mortgagor 
himself  to  charge  for  repairs  and  improvements  made  upon  the 
mortgaged  property.  The  mortgagor  not  having  this  right,  he 
can  confer  no  such  right  upon  a  junior  mortgagee,  as  against  a 
prior  mortgagee.  Expenditures  made  by  a  junior  mortgagee 
stand,  in  this  respect,  upon  the  same  basis  as  when  made  by  the 
mortgagor :  they  confer  no  equity  whatever  as  against  prior  in- 
cumbrances. 

565.  A  claim  for  materials  furnished  an  insolvent  railway 
company,  which  is  not  a  lien  by  virtue  of  any  statute,  is  not 
entitled  to  payment  out  of  the  funds  in  the  hands  of  a  receiver, 
arising  from  a  sale  of  the  property  at  the  instance  of  prior  mort- 
gage bondholders,  until  the  bonds  are  paid.1 

A  promise  by  the  receiver  to  make  such  payment  does  not 
change  the  case.  The  ground  of  the  application  in  this  case  was 
that  the  supplies  were  furnished  to  the  road  while  it  was  run  by 
a  lessee,  and  that  when  the  road  came  into  the  hands  of  the  re- 
ceiver, the  parties  who  had  furnished  the  supplies  had  an  equi- 
table lien  upon  the  funds  realized  from  the  earnings  of  the  road. 
They  had  no  specific  lien,  legal  or  equitable,  upon  the  property. 
The  facts  of  the  case  were  that  there  were  large  mortgages  upon 
the  road,  and  the  company  had  become  hopelessly  insolvent.  Ap- 
plication was  made  to  the  court  to  put  it  into  the  hands  of  a 
receiver,  in  order  that  it  might  be  operated  for  the  payment  of 
these  mortgages.  This  was  done  and  the  road  remained  in  the 
hands  of  the  receiver  for  some  years.  Subsequently  other  cred- 
itors applied  to  the  court,  it  being  manifest  that  the  mortgages 
1  Denniston  v.  Chicago,  Alton  &  St.  Louis  R.  R.  Co.  4  Biss.  414. 

548 


EQUITIES    OF   CONTRACTORS   AND    MATERIAL-MEN.         [§  566. 

could  not  be  paid  in  that  way,  or  at  any  rate,  that  the  time  would 
be  so  long  that  it  was  desirable  for  the  interests  of  all  that  the 
administration  of  the  road  should  be  changed;  and  a  sale  of  the 
property  was  ordered  and  made,  so  that  the  parties  in  interest 
might  realize  upon  their  claims.  The  court  held  that  the  peti- 
tioners had  no  equitable  lien  upon  the  proceeds  of  the  sale,  be- 
cause the  prior  mortgage  liens  must  prevail,  and  these  would 
sweep  away  the  entire  fund,  and  would  then  be  only  paid  in  part. 
Judge  Drummond,  in  making  this  decision,  said,  by  way  of  illus- 
tration :  "  It  is  precisely  like  the  case  of  a  man  who  furnishes  to 
the  owner  of  a  farm  the  means  of  carrying  it  on  ;  but  there  is 
another  party  who  has  a  lien  upon  that  farm,  and  it  is  sold  in 
order  that  the  party  who  has  the  prior  lien  may  be  paid.  Now, 
the  fact  that  the  mechanic  or  laborer  has  furnished  the  means  of 
carrying  on  the  farm  would  not  authorize  him  to  come  into  a 
Court  of  Equity  and  cut  off  the  prior  lien  which  exists  on  the 
farm,  and  prevent  it  from  being  paid.  These  parties  ought  to  be 
paid.  They  have  a  just  claim  against  this  road.  But  it  is  against 
an  insolvent  corporation,  and  they  ask  parties  who  have  a  prior 
right  and  lien  to  pay  them,  because  those  with  whom  they  have 
dealt  cannot  do  so." 

566.  Advances  made  by  officers  of  the  corporation.  —  The 
president  and  directors  of  the  New  Jersey  Midland  Railway  Com- 
pany, previous  to  its  insolvency,  advanced  money  to  pay  for  roll- 
ing stock  leased  to  the  company,  to  be  paid  for  by  monthly  in- 
stalments, and  to  remain  the  property  of  the  vendors  until  the 
whole  amount  of  the  purchase  money  should  be  paid.  They  did 
this  to  preserve  the  property  for  the  benefit  of  the  company  and 
its  creditors,  and  with  the  understanding  on  their  part  that,  upon 
the  payment  of  the  balance  due  upon  the  rolling  stock,  they 
should  become  the  owners  of  it.  Upon  the  appointment  of  a  re- 
ceiver in  a  foreclosure  suit,  they  petitioned  the  court  that  tlx'y 
might  be  subrogated  to  the  rights  of  the  vendors  of  the  rolling 
stock  to  the  extent  of  the  advance  made  by  them  on  account  of 
it,  and  that  the  receivers  should  be  ordered  to  pay  to  them  the 
amount  so  advanced,  with  interest.1  The  court,  however,  denied 
the  petition,  because  there  could  be  no  subrogation  without  an  ex- 
press agreement  for  the  right,  either  with  the  debtor  or  the  cred- 

'   New  Jcrsev  Midland  liy.  Co.  v.  Wurtcndykc,  27  N.  J.  Eq.  058. 

549 


§  566.]       MORTGAGES   NOT   AFFECTED    BY    SUBSEQUENT    EQUITIES. 

itor  ;  and  because  the  right  could  not  be  enforced  until  the  whole 
debt  was  paid.  Moreover,  the  advances  were  made,  and  the  peti- 
tioners' rights  accrued,  long  before  the  filing  of  the  bill  in  the  fore- 
closure suit.  The  payment  of  these  claims  by  the  receivers  was 
nowise  necessary  for  the  preservation  of  the  property,  or  the  pro- 
tection of  the  mortgagees  or  other  creditors.  The  petitioners 
stood  in  a  different  position  from  the  owners  of  the  rolling  stock. 
They  had  no  power  to  embarrass  the  receivers  by  removing  the 
propertjr.  "  The  duties  of  a  receiver  in  a  foreclosure  suit,"  say 
the  court,  "  are  in  aid  of  the  mortgagee,  by  collecting  the  rents 
and  preserving  the  property  from  loss  and  decay.  In  railway 
foreclosures,  his  duties,  though  more  extensive,  are  primarily  the 
same.  The  appointment  is  presumed  to  be  for  the  benefit  of  the 
mortgagees,  and  for  the  protection  of  their  interests.  In  this  case 
it  is  claimed  that  the  mortgage  covers  the  rolling  stock,  and  that 
upon  full  and  final  payment  by  the  company,  or  by  the  receivers, 
to  the  owners  of  the  stock,  the  title  will  vest  in  the  company,  or 
their  mortgagees,  and  enure  to  the  benefit  of  the  bondholders. 
The  petitioners  seek,  at  this  early  stage  of  the  foreclosure  suit, 
and  in  this  irregular  mode,  to  enforce  a  lien  alleged  by  them  to 
be  superior  or  prior  to  that  of  the  mortgagees.  In  this  view,  it  is 
simply  a  contest  for  priority  between  parties  claiming  liens  upon 
the  mortgaged  premises."  The  court,  therefore,  declined  to  con- 
sider their  claim  until,  upon  a  hearing  of  the  cause,  the  rights  and 
priorities  of  all  parties  claiming  liens  upon  the  mortgaged  prem- 
ises could  be  settled  and  adjusted. 

One  who  has  loaned  money  to  a  railway  company,  to  enable  it 
to  pay  interest  on  its  coupon  bonds,  has  no  equity  entitling  him 
to  be  paid  out  of  funds  in  the  hands  of  a  receiver  of  the  road  ap- 
pointed in  behalf  of  the  bondholders.1  A  loan,  however,  made 
for  this  purpose,  upon  the  agreement  or  understanding  that  the 
lender  should  be  treated  as  the  assignee  of  the  holders  of  the  cou- 
pons, might  have  the  effect  to  subrogate  the  lender  to  their  rights, 
and  entitle  him  to  hold  the  coupons  as  part  of  the  debt  secured 
by  the  mortgage.2 

1  Newport  &  Cincinnati  Bridge  Co.  v.         2  See  §  331. 
Douglass,  12  Bush  (Ky.),  673,  714. 
550 


EQUITIES   UNDER   CONTRACTS   AND   LEASES.  [§  567. 

III.  Equities  under   Contracts  and  Leases  made  subsequently  to 

Mortgages. 

567.  Contracts  made  by  a  railway  company  subsequently 
to  a  mortgage  are  not  binding  upon  the  mortgagees,  or  upon 
receivers  of  the  road  who  are  appointed  in  their  behalf,  although 
the  contracts  relate  to  the  carrying  of  freight  in  payment  of  a 
loan  made  to  the  company.  Thus,  the  Boston,  Hartford,  and 
Erie  Railroad  Company,1  having  mortgaged  its  property  to  se- 
cure certain  bonds,  entered  into  a  contract  with  the  Adams  Ex- 
press Company,  whereby  the  latter  company  loaned  the  former 
the  sum  of  $200,000,  and  it  was  agreed  that  the  sum  should  be 
paid  by  carrying  freight  for  the  express  company  at  certain  rates. 
Before  this  loan  was  fully  repaid  the  mortgagees  obtained  the  ap- 
pointment of  receivers,  who,  after  entering  upon  their  trust,  gave 
notice  to  the  express  company  that  they  would  decline  to  be 
bound  by  the  contract.  The  express  company  thereupon  applied 
to  the  court  for  an  order  to  compel  the  receivers  to  carry  the 
freight  in  accordance  with  the  contract  made  with  the  railroad 
company.  The  court  held,  however,  that  the  contract  was  not 
binding  upon  the  mortgagees,  and  that  the  receivers  should  dis- 
regard the  contract,  and  should  recover  of  the  express  company 
compensation  for  carrying  freight,  without  reference  to  the  terms 
fixed  by  the  agreement.  The  court,  upon  this  question,  say  : 
"  The  payment  of  the  debts  of  the  corporation  previously  con- 
tracted would  be  inconsistent  as  well  with  the  nature  and  pur- 
pose of  the  office  of  the  receivers,  as  with  the  terms  of  their 
appointment.  They  have  no  right  to  appropriate  the  property 
and  assets  of  the  corporation  for  that  purpose,  nor  the  earnings 
of  the  road  while  operated  by  them.  The  amounts  to  be  allowed 
under  the  contract  of  the  corporation  with  the  petitioners  are 
earnings  of  the  road,  to  be  acquired  by  services  requiring  outlays 
by  the  receivers,  and  are  a  part  of  its  legitimate  assets  as  much 
as  if  due  in  money.  By  the  terms  of  the  contract  they  are  to  be 
applied  to  the  debt  of  the  corporation.  But  that  contract  con- 
stitutes no  lien  upon  the  property  or  franchise  of  the  corporation  J 
and  it  is  no  more  obligatory  upon  the  receivers  either  t<»  make 
the  application  or  to  render  the  service  than  the  debt  itself  is. 
To  fulfil  that  contract  in  all  its  terms  will  be,  in  substance  and 
1  Ellis  v.  Boston,  Hartford  &  Eric  R.  It.  Co.  107  Mnss.  1,17. 

651 


§  567.]       MORTGAGES   NOT    AFFECTED   BY   SUBSEQUENT   EQUITIES. 

effect,  to  appropriate  the  use  of  the  property  and  the  earnings 
of  the  road,  pro  tanto,  to  the  payment  of  the  debt  to  the  peti- 
tioners in  preference  to  all  others." 

The  question  of  the  right  of  the  mortgagees  to  the  income  of 
the  property  during  the  pendency  of  the  foreclosure  suit  is  de- 
clared by  the  court  to  depend  upon  the  provisions  of  the  mort- 
gage ;  and  the  only  mode  provided  by  that  whereby  the  trustees 
may  reach  and  control  the  use  of  the  corporate  property,  and  ap- 
propriate the  income  of  it,  being  an  entry  by  them  into  possession, 
and  the  filing  and  recording  of  written  notice  of  their  possession, 
they  cannot  acquire  any  lien  upon  the  income  of  the  road  in  any 
other  mode.  And,  therefore,  it  was  held  that  the  lien  of  the 
mortgagees  attached  to  the  earnings  of  the  road  only  from  the 
time  the  trustees  were  themselves  put  into  possession  by  the 
court ;  that  the  railroad  company  having  in  the  mean  time  been 
adjudged  bankrupt,  the  income  belonged  to  the  assignees  from 
that  time  until  the  trustees  were  put  in  possession,  and  that,  as 
to  the 'compensation  earned  under  the  contract  with  the  express 
company  prior  to  the  bankruptcy,  the  express  company  was  bound 
to  pay  to  the  receivers  only  so  much  of  it  as  might  be  required  to 
reimburse  the  receivers  for  their  expenses  and  charges,  and  that 
the  express  company  could  apply  the  balance  to  the  reduction  of 
the  debt  of  the  railroad  company  to  them. 

One  clause  of  the  mortgage  provided  that  the  remedy  therein 
given  should  not  deprive  the  mortgagees  of  their  full  rights  and 
remedies,  as  they  then  existed,  at  law  and  in  equity.  "  Whether 
this  provision  would  authorize  a  foreclosure  and  sale  of  the  prop- 
erty and  franchises  of  the  corporation,  for  the  benefit  of  the  bond- 
holders, without  the  intervention  of  the  trustees  provided  for  in  the 
mortgage;  and  whether,  in  such  case,  the  income,  from  the  time 
the  receivers  took  possession,  would  be  treated  as  incident  to,  and 
part  of,  the  fund  distributable  to  the  mortgagees  or  bondholders, 
we  need  not  determine,  because  these  proceedings  have  not  been 
conducted  to  that  result.  The  suit  having  been  directed  to,  and 
having  resulted  in  possession  by  the  trustees,  for  the  purpose  of  a 
foreclosure  in  pais,  in  pursuance  of  the  provisions  of  the  mort- 
gage first  quoted,  the  effect  upon  the  rights  of  all  parties  must  be 
determined  accordingly.  The  lien  of  the  mortgagees  attaches  to 
the  income  only  from  the  time  of  thus  taking  possession  of  the 
corporate  property  and  franchises." 
552 


EQUITIES   UNDER   CONTRACTS   AND   LEASES.       [§§  568,  569. 

568.  It  has  even  been  attempted  to  establish  an  equitable 
lien  in  behalf  of  a  railroad  company  for  carrying  done  for  con- 
necting lines,  upon  the  foreclosure  of  mortgages  upon  such  lines 
and  the  sale  of  the  property.  The  Atlantic  and  Pacific  Railroad 
Company,  lessees  of  the  Pacific  Railroad  of  Missouri,  had,  before 
the  institution  of  proceedings  to  foreclose  mortgages  on  both 
roads,  become  indebted  to  the  Atchison  and  Nebraska  Railroad 
Company  on  account  of  services  rendered  by  that  company,  in 
carrying  freight  on  "  through  "  bills  of  lading,  and  passengers  on 
"  through  "  tickets.  This  company  intervened  in  the  foreclosure 
proceedings,  and  asked  payment  in  preference  to  the  bondholders, 
on  the  ground  that  the  claim  was  similar  in  its  nature  to  the 
claims  of  employees  for  their  wages,  and  also  on  the  ground  that 
the  proportion  of  freight  and  passage  money  earned  by  the  pe- 
titioning company  under  the  contracts  in  question  had  been  col- 
lected in  advance  by  the  Atlantic  and  Pacific  Railroad  Company, 
and  was  in  the  nature  of  a  trust  fund  held  by  the  latter  company 
for  the  benefit  of  the  former,  and  which,  upon  the  appointment  of 
the  receivers,  passed  into  their  hands  charged  with  the  trust. 
But  the  court  rejected  the  claim  on  the  ground  that  it  was  merely 
an  ordinary  unsecured  debt.1 

569.  There  is  no  legal  principle  by  which  contracts  made 
by  a  railroad  company,  after  the  execution  of  a  mortgage, 
without  the  consent  of  the  mortagees,  and  without  a  positive  stat- 
ute which  enters  into  the  mortgage  contract,  can  be  made  binding 
upon  the  mortgagees  or  upon  receivers  appointed  in  their  behalf. 
Such  a  contract,  although  made  for  the  carrying  of  freight  in  pay- 
ment of  a  loan  to  the  company,  does  not  bind  a  prior  mortgagee.2 

In  a  recent  case  before  the  United  States  Circuit  Court  for  Vir- 
ginia, upon  a  petition  that  the  receivers  be  ordered  to  pay  certain 
bills  for  iron  and  supplies  furnished  the  company,  the  court  de- 
cided that  inasmuch  as  these  claims  rested  solely  upon  the  credit 
of  the  company,  they  could  not  be  made  prior  to  the  mortgages 
upon  the  road,  and  that  the  petitioners  must,  therefore,  wait  until 

i   Ketchumr.  Pacific  Railroad  Co.  U.S.  toll,  was  held   OOt   binding   upon  B  prior 

Circuit  Court  for  E.  Dist.  of  Mo.  3  Cent,  mortgagee  in  Newporl  &  Cincinnati  Bridge 

■q.j.637.  Co.  v.  Douglass,  L2  Bush  (Ky.),  673,  712. 

a  Ellis  ».  Boston,  Hartford  &  E.ie  It.  Bee,   el  o,  Elmira   [ron   &  Steel  Rolling 

R    (Jo.  107  MabS.  1,  17.     A  guaranty  of  Mill  Co.  V.  Erie  Ry.  Co.  26  V  -J.  Eq.  284. 


§  570.]       MORTGAGES   NOT   AFFECTED   BY    SUBSEQUENT   EQUITIES. 

the  road  is  sold,  when  their  claims  could  be  paid  out  of  the  sur- 
plus, if  any,  remaining  after  the  mortgage  should  be  satisfied. 
The  court  also  held  that  claims  for  wages  accruing  before  the  ap- 
pointment of  the  receivers  were  in  the  same  position,  and  could 
not  be  made  a  lien  prior  to  the  mortgages.1 

Although  a  receiver  is  not  bound  by  a  contract  made  by  the 
company  after  the  execution  of  the  mortgage  for  the  enforcement 
of  which  the  receivership  was  created,  j'et  if  he  ratifies  the  con- 
tract, it  seems  that  the  rights  under  such  contract  are  not  affected 
by  the  foreclosure  proceedings.2 

A  contract  between  a  railway  company  and  a  bridge  company, 
made  subsequent  to  the  mortgage,  whereby  the  former  company 
guaranteed  that  the  tolls  of  the  latter  company  for  the  use  of  its 
bridge  across  the  Ohio  River  should  amount  annually  to  a  certain 
sum,  does  not  affect  the  rights  of  the  mortgagee,  and  the  bridge 
company  cannot  require  that  the  order  of  sale  shall  provide  that 
the  purchaser  shall  carry  out  the  terms  of  this  contract.3 

When  another  road  has,  by  contract,  the  right  to  run  over  a 
road  in  the  hands  of  a  receiver,  upon  the  payment  of  a  stipulated 
rent,  and  the  rent  is  not  paid  to  the  receiver  according  to  the 
terms  of  the  contract,  he  may,  after  proper  notice,  sever  the  con- 
nection between  the  roads.4 

With  the  consent  of  the  court,  the  receiver  may  pay  out  of  the 
funds  in  his  hands  sums  collected  by  the  insolvent  company  in 
trust  for  connecting  railroad  companies,  to  which  the  money  be- 
longed. The  withholding  of  these  moneys  would  be  not  only  a 
breach  of  trust,  but  would  probably  result  in  the  refusal  of  these 
companies  to  keep  up  business  relations  with  the  company  or  its 
receivers,  and  in  a  consequent  loss  of  business  to  the  road  ;  and, 
therefore,  the  payment  is  justifiable  as  a  business  measure,  to  keep 
up  the  traffic  of  the  road.5 

570.  A  mortgage  made  after  the  execution  of  a  lease  of  the 
property  by  the  mortgagor,  of  which  the  mortgagee  has  notice 

1  In  re  Atlantic,  Miss.  &  Ohio  R.  R.  Co.  3  Newport  &  Cincinnati  Bridge  Co.  v. 
26  Financial  Chronicle,  444,  May  4,  1878.     Douglass,  12  Bush  (Ky.),  673,  712. 

To  same  effect,  see  Denniston  v.  Chicago,  4  Elmira  Iron  &  Steel  Kolling  Mill  Co. 

Alton  &  St.  Louis  R.  R.  Co.  4  Biss.  414.  v.  Erie  Ry.  Co.  26  N.  J.  Eq.  284. 

2  Western  Union  Telegraph  Co.  v.  At-  5  Meyer  v.  Johnston,  53  Ala.  237,  353 
lantic   &  Pacific  Telegraph   Co.    7  Biss. 

367. 

554 


JUDGMENTS    AGAINST    RECEIVERS.  [§  571. 

either  actual  or  constructive,  is  of  course  subject  to  the  obligation 
of  the  lease.  When  a  railroad  company  which  has  taken  a  lease 
of  another  road  afterwards  executes  a  mortgage,  a  more  interest- 
ing inquiry  arises,  whether  the  mortgagee  is  bound  by  the  con- 
tract of  the  lease  or  can  question  its  validity,  or  foreclose  the 
mortgage  and  -disregard  the  contract.  If  the  lease  be  binding 
upon  the  corporation  itself,  and  the  mortgage  was  given  in  express 
recognition  of  the  contract  and  in  subjection  to  it,  the  mortgagee 
cannot,  any  more  than  the  corporation  itself,  object  to  the  validity 
of  the  lease  on  account  of  the  incapacity  of  the  corporation  to 
make  it.  A  bondholder  under  such  mortgage  is  necessarily  in  the 
same  wa}r  bound  by  the  contract.  Neither  can  he  avoid  the  effect 
of  the  lease  in  any  particular  by  showing  that  as  between  himself 
and  the  mortgagor  it  would  be  prejudicial  and  unjust  to  him,  to 
give  the  contract  the  effect  the  parties  themselves  intended  it  to 
have,  and  which  governs  as  between  them.  To  make  his  defence 
effectual  he  must  show  that  it  would  be  inequitable  for  the  lessor 
as  against  him  to  claim  this  construction  of  the  lease.1 

IV.  Judgments  against  Receivers. 
571.  A  judgment  or  claim  against  a  receiver  for  personal 
injuries  sustained  by  a  passenger  upon  the  road,  while  it  is 
run  by  the  receiver  for  the  benefit  of  mortgage  bondholders, 
might  possibly,  at  first  sight,  be  regarded  as  an  incident  to  the 
running  of  the  road,  and,  therefore,  entitled  to  payment  out  of 
the  fund  in  the  receiver's  hands.  It  is  certainly  a  claim  upon 
such  part  of  the  fund  as  is  not  required  to  satisfy  prior  mortgage 
liens  ;  but  when  it  is  sought  to  make  such  a  claim  superior  to 
mortgages  in  existence  when  the  right  to  the  damages  accrued, 
the  claimant  has  to  meet  the  objection,  that  such  a  lien  is  not  one 
of  the  incidents  to  running  a  road;  and  it  is  not  necessary  to 
create  such  a  lien  in  order  to  procure  traffic  and  travel  upon  the 
road.  It  is  not  usual  for  a  passenger,  before  purchasing  a  ticket 
over  a  road,  to  inquire  whether  it  is  in  the  hands  of  a  receiver, 
and  whether  any  claim  that  he  may  have  for  injuries  will  take 
precedence  of  existing  mortgages  upon  the  road.  Neither  do  pas- 
sengers inquire,  in  case  the  road  be  not  in  the  hands  of  receivers, 
whether  it  is  subject  to  mortgage  or  not;  although  it.  is  evident 
enough  that,  in  such  case,  a  judgment  againsf  the  railroad  com- 

1  Vermont  &  Canada  It.  It.  Co.  v.  Vermont  Central  K.  R,  Co.  84  Vt.  1. 

565 


§  571.]       MORTGAGES   NOT    AFFECTED    BY    SUBSEQUENT   EQUITIES. 

pany  would  bind  only  the  corporation  and  its  property,  and  might 
be  rendered  valueless  by  the  action  of  the  mortgagees  in  taking 
possession  of  the  property,  and  applying  the  whole  of  it  to  the 
payment  of  their  liens.  As  a  matter  of  fact,  the  railroads  in  the 
United  States  are  very  generally  subject  to  mortgage ;  and  pas- 
sengers, without  inquiry,  take  their  risk  of  the  roads  being  so  in- 
cumbered that  judgments  against  them  could  not  be  collected. 
Why,  then,  upon  the  appointment  of  a  receiver  and  the  recovery 
of  a  judgment  against  him,  should  the  claim  be  superior  to  exist- 
ing mortgages,  when  it  would  not  have  been  superior  to  them  if 
the  judgment  had  been  rendered  prior  to  the  appointment  of  the 
receiver  ?  The  appointment  does  not  prejudice  the  rights  of 
mortgagees,  or  derange  or  affect  in  any  way  the  priority  of  their 
liens. 

Such  was  substantially  the  view  taken  by  the  Circuit  Court  of 
the  United  States  in  reference  to  a  judgment  rendered  as  damages 
for  an  injury  to  a  passenger  on  the  Alabama  and  Chattanooga 
Road,  while  it  was  in  the  hands  of  receivers.1  It  was  regarded 
as  too  clear  for  argument,  that,  if  the  road  had  been  run  by  the 
president  and  directors  when  the  injury  was  sustained,  such  claim 
could  not  possibly  have  priority  ;  but  the  receivers  act  merely  in 
place  of  the  president  and  directors,  except  so  far  onty  as  the 
court  may  otherwise  direct.  They  are  appointed  to  take  care  of 
the  property,  and  are  like  administrators,  who  cannot  override 
existing  liens,  and  who  are  under  no  personal  liability  to  respond, 
except  for  their  own  personal  neglect.  The  court  in  this  case 
examined  the  orders  appointing  the  receivers  and  directing  their 
administration,  and  found  nothing  in  them  to  establish  any  prior 
lien  in  behalf  of  such  a  judgment  creditor.  These  orders  appoint 
a  receiver  to  take  charge  of  the  entire  property  of  the  road,  to 
complete  it  and  put  it  in  repair,  and  to  procure  rolling  stock  and 
other  things  necessary  to  operate  it  to  the  best  advantage,  so  as 
to  prevent  the  property  from  further  deteriorating,  and  to  save 
and  preserve  it  for  the  benefit  and  interest  of  the  first  mortgage 
bondholders,  and  all  others  interested  in  it.  For  these  purposes 
the  receivers  are  authorized  to  borrow  money  and  make  the  pay- 
ment of  the  loan  a  first  lien  upon  the  property.  The  funds  raised 
by  loan,  or  received  from  any  other  source,  and  which  may  not  be 
required  for  the  purposes  before  mentioned,  or  for  their  own  ser- 
1  Davenport  v.  Alabama  &  Chattanooga  R.  R.  Co.  2  Woods,  519. 

556 


JUDGMENTS   AGAINST   RECEIVERS.  [§  572. 

vices,  are  to  be  paid  into  court  for  the  use  of  the  bondholders. 
In  conclusion,  Judge  Woods  says  :  "  The  exercise  of  power  by  a 
court  to  displace  liens  can  only  be  sustained  on  the  ground  of  act- 
ual necessity  ;  and  surely  there  can  be  no  necessity  to  append,  as 
an  incident  to  running  a  railroad,  a  lien  for  damages  that  dis- 
places existing  contracts.  The  party  has  a  right  to  be  paid  from 
the  fund  remaining  after  satisfying  prior  rights.  He  has  a  right 
to  be  allowed  his  claim  to  be  paid  from  an  excess  remaining.  He 
has  the  same  right  against  the  property  which  he  could  have  had 
if  the  road  had  been  run  by  the  president  and  directors  when  his 

right  accrued,  and  none  other It  cannot  be  said  that  the 

giving  of  a  prior  lien  to  a  traveller  for  damages  is  an  expense  in- 
cident to  the  execution  of  the  trust  which  was  created  in  behalf  of 
the  mortgagees.  Such  a  claim  is,  in  fact,  no  '  expense '  at  all,  in 
the  proper  or  ordinary  sense  of  the  word.  It  is  a  liability  result- 
ing secondarily  from  operating  the  road,  and  that  is  all." 

572.  A  claim  or  judgment,  however,  against  a  receiver  for 
the  value  of  goods  lost  in  transportation,  or  for  damages  done 
to  property  while  the  road  was  in  his  hands,  is  regarded  as  an 
expense  incidental  to  the  management,  and  therefore  payable  out 
of  the  earnings  of  the  road,  or  other  funds  in  the  receiver's 
hands.1 

There  is  no  exemption  of  property  in  the  hands  of  a  receiver 
from  the  operation  of  the  tax  laws  of  the  government  within 
whose  jurisdiction  such  property  is  situated.  The  Circuit  Court 
of  the  United  States  for  the  Southern  District  of  New  York  hav- 
ing appointed  receivers  of  the  New  York  and  Oswego  Midland 
Railroad  Company,  pending  a  suit  for  the  foreclosure  of  a  mort- 
gage upon  the  road,  the  receivers  applied  to  the  court  to  enjoin 
tax-collectors  from  executing  warrants  for  taxes  assessed  on  the 
mortgaged  property,  on  the  ground  of  irregularities  in  the  a 
ment  of  the  taxes  ;  but,  the  warrants  appearing  to  be  regular, 
and  the  collectors  acting  in  good  faith  in  the  discharge  of  their 
duty,  the  court  refused  to  enjoin  them.  Judge  Blatchford,  ren- 
dering the  decision  of  the  court,  said:2  "There  is  no  prerogative 
of  sovereignty  which  is  of  higher  importance  than  the  power  oi 
taxation,  which  includes  the  collection  as  well  aa  the  assessing  of 

i  Cowdrey  v.  Galveston,  Houston  &  2  Stevens  v.  New  York  &  Oswego  Mid- 
Henderson  it.  K.  Co.  93  U.  S.  352.  lund  U.  K.  Co.  13  Blatchf.  L04. 

I 


§  572.]        MORTGAGES   NOT    AFFECTED    BY    SUBSEQUENT    EQUITIES. 

the  taxes.  The  very  existence  of  the  state  as  a  government  de- 
pends upon  the  exercise  of  such  power.  Except  under  very  spe- 
cial circumstances,  such  power  ought  not  to  be  interfered  with  by 
injunction.  If  any  person  is  aggrieved  by  the  exercise  of  the  au- 
thority of  the  tax-collector,  he  has  an  adequate  ultimate  remedy 
in  an  action  against  the  wrong-doer,  with  the  preliminary  remedy 
afforded  of  directly  reviewing  the  proceedings  according  to  the 
method,  and  before  the  tribunal,  provided  by  the  laws  of  the  gov- 
ernment under  wdiose  authority  the  proceeding  takes  place." 

The  priority  of  mortgages  over  judgment  and  other  creditors 
is  in  England  established  by  statute,1  which  provides  that  all 
money  borrowed  or  to  be  borrowed  by  a  company  on  mortgage  or 
bond,  or  debenture  stock,  under  the  provisions  of  any  act  author- 
izing the  borrowing  of  it,  shall  have  priority  against  the  company, 
and  the  property  from  time  to  time  of  the  company,  over  all  other 
claims,  on  account  of  any  debts  incurred  or  engagements  entered 
into  by  them  after  the  passing  of  the  act,  provided  that  this  pri- 
ority shall  not  affect  any  rent  charge  or  any  claim  for  land  taken, 
used,  or  occupied  by  the  company  for  the  purposes  of  the  railway. 

i  Railway  Companies  Act  1867,  30  &31  Vict,  c  .127,  §23. 
558 


CHAPTER  XX. 

LIENS    AFFECTING    THE    PRIORITY    OF    RAILROAD    MORTGAGES. 


L  Application  of  general  lien  laws  to  rail- 
roails,  573-578. 

II.  Special  lien  laws  applicable  to  rail- 
roads, 579-582. 


III.  Statutes  of  the  several  states  giving 
liens  upon  railroads,  583-G10. 

IV.  Vendor's  lien,  Gil. 

V.  Transportation  certificates,  612. 

VI.  Judgment  lien,  613. 


I.  Application  of  General  Lien  Laivs  to  Railroads. 

573.  The  general  lien  laws  in  favor  of  mechanics  and 
others  who  perform  labor  and  furnish  material  for  the  construc- 
tion of  buildings  are  usually  regarded  as  having  no  application  to 
railroads,  except  so  far  as  they  give  a  lien  for  structures  connected 
with  railroads,  which  come  strictly  within  the  designation  of  build- 
ings. Objection  has  sometimes  been  made  to  the  application  of 
the  general  lien  laws  to  railroads  even  to  this  extent,  for  the 
reason  that  it  is  regarded  as  contrary  to  public  policy  to  allow 
them  to  be  sold  in  pieces  and  destroyed,  when  they  are  so  neces- 
sary to  public  use  and  convenience.1 

Although  this  view  seems  to  prevail  in  Pennsylvania,2  and  has 
at  times  been  entertained  elsewhere,  and  on  this  ground  buildings 
of  a  railroad  or  other  public  corporation  have  been  held  not  to  be 
subject  to  lien  under  the  general  lien  laws,  yet  the  prevailing 
view  is  otherwise,  and  a  building  erected  for  a  railroad  company 
is  generally  regarded  as  within  a  statute  giving  a  lien  for  work 
done  and  materials  furnished  in  the  construction  of  "  any  dwell- 
ing-house or  other  building."3  The  doctrine  that  a  railroad  Is  an 
entire  thing  cannot  be  applied  so  as  to  cut  off  such  a  lien,  because 
the  property  to  which  it  attaches  dues  not  become  a  part  of  the 

1  McPheetera  v.  Merimac  Bridge  Co.  (Pa.)  5  Leg.  &  Ins.  K.  lo7  ;  11  Pitts.  L. 
28  Mo.  465  ;  Dunn  v.  North  Mo.  It.  B.  24     J.  4. 

Mo.  403.  ;1  Hill  r.  La  Crossefi  Milwaukee  B.  B. 

2  Foster  t;.  Fowler,  60  l*a.  St.  27  ;  Mc-  Co.  11  Wis.  21  I  ;  Botsford  r.  N.  u  Haven, 
Ilvain  v.  Hestonville  &  Mantua  It.  It.  Middletown  &  Willimantio  It.  B.  Co.  41 
Co.  5  1'hila.  (Pa.)  13  ;   Fvans  v.  It.  It.  Co.  Conn.  454. 


§§  574,  575.]       LIENS  AFFECTING  PRIORITY  OF  RAILROAD  MORTGAGES. 

entirety  for  that  purpose,  until  the  lien  is  discharged,  any  more 
than  it  would  if  the  lien  had  been  created  by  a  mortgage  executed 
by  the  company.1 

574.  A  railroad  bridge  is  not  a  building  within  the  mean- 
ing of  the  word  in  a  general  lien  law.  —  Thus,  under  a  statute 
giving  a  lien  for  work  done,  or  materials  furnished,  in  the  erection 
or  construction  of  "  any  dwelling-house  or  other  building,  "  a  rail- 
road bridge  is  not  included  as  subject  to  the  lien.2  A  bridge  is 
not  a  "  building."  This  word  in  common  usage,  and  in  its  exact 
signification  as  well,  means  a  structure  designed  for  the  habitation 
of  man  or  animals,  or  for  the  sheltering  of  property.  A  bridge 
may  be  built,  but  the  structure  is  not  a  building.  A  railroad  may 
be  built,  and  the  structure  is  just  as  much  a  building  as  is  a 
bridge.  The  statute,  also,  by  speaking  of  the  lot  on  which  the 
building  stands,  and  making  the  interest  of  the  owner  therein,  to 
an  amount  not  exceeding  one  acre  in  a  city,  or  forty  acres  in  the 
country,  liable  to  the  lien,  indicates  that  it  did  not  contemplate 
any  such  structure  as  a  bridge. 

575.  A  railroad  bridge  is  not  an  improvement  within  the 
meaning  of  that  word  as  used  in  a  general  lien  law.  Under  a 
former  lien  law  of  Missouri,  applicable  to  the  county  of  St.  Louis, 
it  was  held  that  there  could  be  no  lien  for  labor  performed,  or 
materials  furnished,  for  the  construction  of  bridges  and  culverts 
upon  a  railroad,  although  the  law  gave  such  a  lien  for  "  improve- 
ments" as  well  as  buildings.  The  decision  was  placed  upon  the 
ground  that  a  railroad  is  a  public  work,  established  by  public  au- 
thority for  the  public  use  and  benefit ;  and  that  a  lien,  with  a 
power  of  enforcing  it  by  execution,  would  subject  the  portion  of 
the  road  affected  by  it  to  sale,  and  might  deprive  the  public  of 
the  benefit  contemplated  in  the  grant  of  the  corporate  franchises. 
The  Constitution  of  the  state  then  required  the  fostering  of  public 
improvements,  and  the  state  had  assumed  great  responsibilities  in 
building  railroads  for  the  public  use,  and  it  was  regarded  as  un- 
reasonable to  suppose  a  power  remained  in  any  individual  to 
deprive  the  public  of  the  benefit  of  such  improvements.3 

1  Hill  v.  La  Crosse  &  Milwaukee  R.  E.         2  La  Crosse  &  Milwaukee  E.  E.  Co.  v. 
Co.  supra.  Vanderpool,  11  Wis.  119. 

s  Dunn  v.  North  Mo.  E.  E.  24  Mo.  493. 
560 


APPLICATION   OF   GENERAL   LIEN  LAWS   TO   RAILROADS.      [§§  576,  577. 

576.  The  terms  structure,  erection,  or  improvement.  —  The 
general  lien  laws  in  some  of  the  states  give  a  lien  for  labor  done 
and  materials  furnished  in  the  erection  or  alteration,  not  only  of  a 
house  or  other  building,  but  so  of  any  "  structure,"  "  erection," 
or  "  improvement  "  upon  land.1  Under  these  ambiguous  terms  it 
is  of  course  possible  to  establish  a  lien  for  almost  anything  that 
can  be  attached  to  the  realty.  Accordingly,  under  such  a  statute, 
a  lien  has  been  established  against  a  railroad  for  ties  furnished  the 
company;2  and  doubtless  a  lien  might  be  established  for  almost 
any  part  of  a  railroad,  such  for  instance  as  the  grading  of  the 
line  of  road  as  an  "  improvement "  upon  land.  The  application 
of  such  statutes  has  not  often  been  the  subject  of  adjudication,  be- 
cause in  nearly  all  the  states  there  are  now  statutes  which  apply 
specifically  to  railroads,  giving  liens  for  labor  performed  and  ma- 
terials supplied  in  their  construction  and  repair. 

577.  Under  a  statute  of  Iowa,  providing  that  a  mechan- 
ic's lien  for  work  and  material  shall  attach  from  the  com- 
mencement of  "  the  building,  erection,  or  other  improvement," 
it  has  been  held  that  a  lien  for  railroad  ties  may  be  sustained 
against  a  mortgage  made  before  such  ties  were  furnished  to  the 
company  or  contracted  for,  in  case  the  construction  of  the  road 
had  been  commenced  before  the  making  of  the  mortgage,  and  was 
not  then  completed,  although  the  person  who  furnished  the  ties 
and  claimed  the  lien  had  nothing  to  do  with  the  previous  construc- 
tion of  the  road.3  In  the  case  before  the  court,  sixteen  miles  of 
road  had  been  graded  before  the  making  of  the  mortgage,  and 
the  ties  were,  some  months  afterwards,  furnished,  apparently,  to  a 

1  As  in  Arkansas,  " erection  or  other  2  Neilson  v.  Iowa  Eastern   Ry.  Co.  44 

improvement,"  Dig.  of  Stat.  1874,  §S  405G-  Iowa,  71.    The  decision  in  this  case  is  fully 

4062;  Tennessee, " erection  or  improve-  stated  and  examined  in  the  following 

ment,"  Acts    1808,  pp.    61-67;    South  tion.    Other  states  have  similar  statutes. 

Carolina,   'Structure,"   R.  S.   1873,  p.  3  Neilson  v.  Iowa  Eastern   Ry.  Co,  4  i 

550;    Delaware,    "  house,  building,  or  Iowa,  71.    And  see  Taylor  v.  Burlington, 

structure,"  Laws    1875,   ch.    184,  p.  308;  Cedar  Rapids  &  Minn.   Ry.  Co.  in    I'.   S. 

Kansas,  " building,  erection,  or  improve-  ('.  C.  for  District  of  [owa,   Maj    Term, 

ment,"    Dassler's    Stats.    1876,    §3861;  1877,11  West.  Jur.  337;  4  Cent.  L.J.  536; 

Mississippi,  "buildings,  bridge,  or  mill;"  4  Dill.  571.     It  must  l"'  confessed  that, 

Michigan,    "building,    wharf,    machin-  under  this  statute,  or  under  this  construc- 

ery,"  Compiled   Laws  1871,  §  6789  ;  Acts  tion  <>i  it,a  mortgageof  an  unfinished  rail- 

1877,  p.  145;  Iowa,  "  erection  or  other  im-     road  is,  in  [owa,  averj  | r  security. 

provement,"  Code    1873,  §§  2139-2141. 

30  561 


§  577.]       LIENS   AFFECTING   PRIORITY    OF   RAILROAD    MORTGAGES. 

contractor  who  had  undertaken  to  equip  the  road.  Upon  the  first 
argument  of  the  case  before  the  Supreme  Court,  the  lien  was 
established  against  the  road,  subject  to  the  mortgage  ; 1  but  upon 
a  reargument  of  the  case,  the  lien  was  given  priority  of  the  mort- 
gage, by  reason  of  the  terms  of  the  statute,  which  was  inter- 
preted to  mean  something  different  from  a  statute  providing  that 
the  lien  shall  attach  only  from  the  commencement  of  the  work, 
or  of  the  furnishing  of  the  materials.2  In  the  latter  decision,  in 
reply  to  the  suggestion  that  it  would  be  unjust  to  the  mortgagee 
to  make  his  mortgage  subject  to  liens  for  work  subsequently  com- 
menced, it  is  urged  that  a  person  who  takes  a  mortgage  upon  a 
partially  constructed  building  or  other  improvement  has  notice, 
from  the  condition  of  the  property,  of  the  possibility  that  me- 
chanics' liens  may  attach  upon  it  ;  that,  although  he  cannot  know 
the  amount  of  the  lien,  or  whether  the  work  will  be  completed  in 
pursuance  of  the  plan  of  the  mortgagor,  according  to  which  the 
work  was  commenced,  yet,  having  elected  to  deal  with  the  mort- 
gagor, he  may  be  required  to  rely  upon  his  good  faith  and  pru- 
dence ;  and  that,  although  hardship  might  sometimes  result  from 
such  a  construction,  yet  the  danger  to  be  apprehended  is  not  such 
as  to  control  the  construction  of  a  statute '  having  so  little  am- 
biguity. "  In  regard  to  the  policy  of  the  statute,  as  we  construe 
it,"  say  the  court,  "  this  may  be  said  :  it  is  not  desirable  that  the 
execution  of  a  mortgage  upon  land  upon  which  a  building  or  other 
improvement  is  in  process  of  construction  should  arrest  the  work 
and  prevent  its  completion.  Both  mortgagor  and  mortgagee  are 
interested  in  its  completion.  Without  it,  the  money  already  ex- 
pended must,  ordinarily,  to  a  great  extent,  be  lost.  Take  the 
present  case  as  illustration.  The  intervenors  are  holders  of  mort- 
gage bonds  upon  a  road,  sixteen  miles  of  which  had  been  graded 
at  the  time  the  mortgage  was  made.  The  value  of  their  secu- 
rity depended  upon  the  further  construction  of  the  road.  They 
foresaw  that  work  and  materials  must  be  furnished  by  some- 
body, or  nothing  could  be  realized  from  what  had  been  done. 
Yet  the  construction  of  the  statute  which  they  contend  for  would 

1  Nelson  v.  Iowa  Eastern  Ry.  Co.  8  or  improvement,  and  to  the  land  on  which 
Am.  Ry.  Rep.  82.  the   same  is  situated,  or  either  of  them, 

2  Code  1873,  §  2139,  provides  that  such  made  subsequent  to  the  commencement 
liens  "  shall  be  preferred  to  all  other  of  said  building,  erection,  or  improve- 
liens  and  incumbrances  which  may  be  at-  ment."     See  §  591. 

tached  to  or  upon  such  building,  erection, 

562 


APPLICATION   OF   GENERAL   LIEN   LAWS   TO   RAILROADS.      [§  578. 

require  the  mortgagor  to  keep  a  fund  on  band  for  the  daily  pay- 
ment of  the  laborers  and  material-men,  or  that  the  work  and  ma- 
terials should  be  furnished  practically  without  security." 

The  construction  of  this  statute  adopted  by  the  court  proceeds 
upon  the  ground  that  a  railroad  is  an  entirety;  so  that,  if  the 
work  of  construction  of  any  portion  of  the  road  has  been  com- 
menced before  the  execution  of  the  mortgage,  it  does  not  matter 
that  the  particular  work  for  which  the  lien  is  claimed  was  done, 
or  the  materials  furnished,  for  some  other  portion  of  the  road,  and 
after  the  execution  of  the  mortgage.  The  claim  relates  back  to 
the  commencement  of  the  work.1 

This  same  statute  even  provides  for  giving  priority  to  a  lien 
for  labor  or  materials  over  a  mortgage  executed  before  the  com- 
mencement of  the  "building,  erection,  or  other  improvement." 
The  lien  attaches  in  preference  to  any  prior  mortgage  ;  "  and 
any  person  enforcing  such  lien  may  have  such  building,  erection, 
or  other  improvement  sold  under  execution,  and  the  purchaser 
may  remove  the  same  within  a  reasonable  time  thereafter." 2 
The  relative  rights  of  a  mortgagee  of  a  railroad  and  a  mechanic, 
in  this  case,  would  be  that  the  mortgagee  would  retain  his  prior- 
ity as  to  the  land  ;  but  the  mechanic  would  have  priorit}^  over  the 
mortgagee  as  to  the  buildings,  erections,  or  improvements  put 
upon  the  land  subsequent  to  the  mortgage,  and  might  enforce  his 
lien  upon  the  building  or  other  independent  structure,  by  causing 
it  to  be  sold  and  removed.3 

578.  A  further  question  has  arisen  under  this  statute  as 
to  the  rights  of  the  mortgagee  and  the  mechanic,  when  re- 
pairs are  made  upon  a  structure  already  completed,  which, 
with  the  land,  is  covered  by  mortgage.  The  statute  gives  a  lien 
for  repairs;  but  when  the  lien  attaches,  and  how  it  is  to  be  en- 
forced,  are  questions  which  have  given  the  courts  of  Iowa  much 
trouble.4  This  question  came  before  the  Circuit  Court  of  the 
United  States  for  the  District  of  Iowa,  in  a  foreclosure  suit 
against  the  Burlington,  Cedar  Rapids,  and  Minnesota  Railway 
Company,  upon  a  petition  of  a  firm  of  bridge-makers,  to  establish 

1  See  §  591.  Minn.  Ry.  Co.  s>trr.i,  per  Dillon,  .1.     And 

2  Code  1873,  §  2141.  Getchellv.  Allen,  84   [owa,  559. 

»  Taylor  v.  Burlington,  Cedar  Rapids  ft        '  Neilson    '•.    [owa    Eastern    By.    Co. 

supra ;  Getchell  v,  Allen,  supra, 

568 


§  579.]      LIENS   AFFECTING   PRIORITY   OF   RAILROAD   MORTGAGES. 

a  lien  for  one  span  of  a  bridge  furnished  this  road  after  it  had 
been  fully  completed  and  was  in  operation.1  A  portion  of  a 
bridge  had  been  broken  down  or  carried  away  by  high  water,  and 
the  span  for  which  a  lien  was  claimed  was  to  replace  this.  The 
court  held  that  any  lien  which  could  be  claimed  would  be  subject 
to  the  mortgage.  Judge  Dillon,  delivering  the  opinion  of  the 
court,  said  :  "  As  against  the  owner,  the  lien  attaches  from  the 
time  the  repairs  are  begun.  This  is  plain  enough,  and  just.  But 
when  does  this  lien  attach,  as  against  a  prior  mortgagee  of  land 
and  building  ?  The  answer  is,  at  the  same  time  it  attaches  as 
against  the  owner.  The  result  is,  that  repairs  on  a  previously 
completed  building  or  railway,  on  which  a  mortgage  rested  prior 
to  the  commencement  of  such  repairs,  do  not  give  a  lien  which 
will  override  the  lien  of  the  mortgage.  The  legislature  has  not 
authorized  the  owner  of  a  building  or  railway,  on  which  such 
owner  has  given  a  mortgage,  to  improve  the  mortgage  out  of  ex- 
istence, by  making  repairs  ad  libitum,  and  furnishing  the  owner 
the  necessary  credit  therefor,  by  giving  the  mechanic  and  mate- 
rial-man a  lien  paramount  to  the  mortgage.  Such  a  view  has 
neither  law,  justice,  equity,  nor  public  policy  to  recommend  it." 

The  same  rule  is  applicable  in  respect  to  any  repairs  made 
upon  a  mortgaged  railroad  already  completed  and  in  operation, 
such  as  the  laying  of  new  steel  or  iron  rails.  There  is  a  lien  for 
such  repairs,  but  it  is  subject  to  the  lien  of  the  mortgage.2 

It  would  seem  that  there  could  be  no  mechanics'  lien  upon  a 
railroad  for  cars  furnished  for  use  upon  it.3 

II.  Special  Lien  Laws  applicable  to  Railroads. 

579.  It  is  within  the  legitimate  scope  of  legislative  power 

to  provide  that  laborers  and  contractors  may  have  a  lien  for 

labor  performed  and  for  materials  furnished  in  the  construction 

or  improvement  of  a  railroad  in  preference  to  all  mortgages  or 

1  Taylor  v.  Burlington,  Cedar  Rapids  upon  the  property  covered  by  the  railway 

&  Minn.  Ry.  Co.   11   West.  Jur.  337;  4  mortgages. 

Dill.  570.    Judge  Dillon,  in  this  case,  re-  2  Taylor   v.   Burlington,  Cedar  Rapids 

marked  that  there  were  probably  forty  in-  &  Minn.  Ry.  Co.  supra. 

tervening   petitions    filed   in    the  various  3  See  New  England  Car  Spring  Co.  v. 

railway  foreclosure  cases  pending  at  that  Baltimore  &  Ohio  R.   R.  Co.  11   Md.  81  ; 

time,  in  that  court,  seeking  to  establish,  Taylor    v.  Burlington,   Cedar    Rapids   & 

on  behalf  of  claimants,  mechanics'  liens  Minn.  Ry.  Co.  11  West.  Jur.  337 ;  4  Cent. 


L.  J.  536. 


564 


SPECIAL  LIEN  LAWS   APPLICABLE   TO   RAILROADS.      [§§  580,  581. 

other  incumbrances  placed  upon  the  property  subsequent  to  the 
passage  of  the  act.  The  statute  of  the  State  of  Missouri  to  this 
effect  was  held  by  the  Circuit  Court  of  the  United  States  to  be 
constitutional,  and  to  give  priority  to  such  claims  over  a  mortgage 
executed  just  after  the  passage  of  the  act ;  the  phrase  "  subse- 
quent to  the  passage  of  this  act  "  being  interpreted  to  mean  sub- 
sequent to  the  approval  of  it  by  the  governor,  and  not  subsequent 
to  the  expiration  of  ninety  days  from  the  passage  of  the  act,  at 
which  time  by  general  law  every  act  takes  effect,  unless  a  differ- 
ent time  is  therein  appointed.1 

580.  Who  is  a  laborer.  —  A  general  agent  or  superintendent 
of  a  corporation  employed  at  a  stipulated  salary  is  not  entitled  to 
the  benefit  of  a  lien  in  favor  of  mechanics,  builders,  lumbermen, 
artisans,  workmen,  laborers,  or  other  persons  who  may  perform 
any  work  upon  or  furnish  materials  for  any  building.  Such  an 
agent  or  superintendent  stands  in  the  place  of  the  corporation 
itself  toward  others  intended  to  be  protected  by  the  law.2  Nor  is 
a  contractor  who  agrees  to  build  a  railroad,  or  to  furnish  the  labor 
of  others,  a  laborer  or  servant ; 3  nor  is  the  secretary  of  a  corpora- 
tion a  laborer  or  servant ;  4  nor  is  a  consulting  engineer  a  laborer 
or  operative  ; 6  nor  is  a  civil  engineer  a  laborer  or  workman  ; 6 
nor  is  a  time-keeper  and  superintendent  in  the  employ  of  a  con- 
tractor a  laborer  ; 7  nor  is  a  sub-contractor  an  employee.8 

581.  The  right  conferred  by  a  lien  in  favor  of  laborers  is 
personal,  and  cannot  be  availed  of  by  one  who  furnishes  labor. 
Under  the  statute  of  New  Jersey,9  giving  to  the  laborers  in  the 
employ  of  any  corporation,  in  case  of  its  insolvency,  a  lien  upon 
its  assets  for  the  amount  of  wages  due  them,  it  is  held  that  the 
right  conferred  is  personal,  inhering  alone  in  the  person  who 
actually  performs  labor  or  service,  and  not  in  one  who  furnishes 

1  Walker  v.  Miss.  Valley  &  Western  R.  6  Ericsson  v.  Brown,  38  Barb.  (X.  V.) 
R.  Co.  2  Cent.  L.J.  481.  390. 

2  Smallhouse  v.  Kt.  &  Mon.  Gold  &  °  Pennsylvania  &  Del.  R.  R.  Co.  v. 
Silver  Mining  Co.  2  Mon.  T.  443 ;  Blakey  Leuffer,  84  Pa.  St.  1C8. 

v.  Blakey,  27  Mo.  39.  '  Missouri,   Cans.  S   Tex   By.  Co.  u. 

3  Balch  v.  N.  Y.  &  Oswego  Midland  R.     Baker,  14  Sana  563. 

R.  Co.  4G  N.  Y.  521  ;    Aikin  v.  Wasson,         "  Ncy   v.    Dnbnqne,   &c.    R.    R.  Co.  20 
24  X.  V.  482.  Iowa,  :u7. 

<  Coffin  v.  Reynolds,  37  N.  Y.  640.  9  Kov.  Sts.  1877,  p.  188. 

565 


§  582.]       LIENS   AFFECTING   PRIORITY    OF   RAILROAD    MORTGAGES. 

the  labor  of  others  under  a  contract.  Thus  one  who  has  con- 
tracted with  a  railroad  company,  whose  road  is  located  in  New 
Jersey  and  has  its  terminus  at  Jersey  City,  to  transfer  by  his  own 
teams  or  drays  over  the  company's  ferry  all  freight  received  in 
New  York  for  transportation  over  the  road,  and  all  freight  re- 
ceived in  Jersey  City  to  be  delivered  in  New  York,  is  not  an  em- 
ployee entitled  to  such  lien,  but  a  contractor.1  "  I  think  it  very 
plain,"  said  the  vice  chancellor,  "  the  legislature  did  not  intend 
to  give  a  lien  or  preference  for  wages  due  for  vicarious  labor  or 
service,  or  to  confer  upon  one  person  the  power  to  depute  or  dele- 
gate to  himself  the  labor  of  many  others,  so  that  he  can  be  an 
employee  of  a  corporation  to  the  extent  of  one  hundred  or  one 
thousand  men  daily.  Such  a  purpose  would  have  been  expressed 
by  giving  preference  to  the  debt,  as  that  all  debts  due  for  labor  or 
service  should  be  a  lien,  and  not  to  the  creditor,  as  it  now  stands, 
that  the  employees  in  the  employ  of  a  corporation  shall  have 
a  lien  upon  its  assets  for  the  wages  due  to  them  respectively." 
Moreover  the  obvious  purpose  of  the  statute  was  in  the  first  place 
to  render  it  certain  that  the  laborers  whose  services  are  essential 
to  the  continued  operation  of  a  railroad  or  like  enterprise  should 
be  paid  in  any  event,  so  that  there  should  not  be  even  a  tem- 
porary suspension  of  the  business  ;  and  in  the  second  place  to  pro- 
tect a  class  of  persons  who  are  dependent  upon  their  wages  for 
support,  and  who  are  unable  to  protect  themselves  against  the 
misfortune  or  fraud  of  the  company.  The  preference  given  by 
the  statute  grows  out  of  the  character  of  the  creditor,  and  not  out 
of  the  character  of  the  debt. 

582.  No  lien  can  be  claimed  for  money  advanced  to  labor- 
ers at  the  request  of  a  railroad  company.  Thus,  if  certificates  of 
indebtedness  issued  by  a  railroad  company  to  its  laborers  for 
work  are  taken  up  by  a  third  person,  at  the  request  of  the  com- 
pany and  on  its  agreement  to  settle  with  him  for  the  same,  he  is 
entitled  to  recover  of  the  company  for  money  advanced  ;  but  he 
cannot  claim  a  lien  for  goods  and  supplies  furnished  necessary  for 
the  operation  of  its  road,  under  contract  therefor.  The  fact  that 
the  certificates  were  issued  to  enable  the  laborers  to  procure  board, 
and  to  enable  boarding-house  keepers  to  obtain  groceries  and  pro- 
visions for  hands  engaged  in  the  construction  of  the  road  does  not 

1  Lehigh  Coal  &  Navigation  Co.  v.  Central  R.  R.  Co.  of  N.  J.  29  N.  J.  Eq.  252. 
566 


STATUTES   GIVING   LIENS   UPON   RAILROADS.  [§  583. 

enable  one  who  has  advanced  money  to  take  up  such  certificates 
to  claim  that  he  has  supplied  goods  under  contract  necessary  for 
the  operation  of  the  road.  The  statute  embraces  materials  used, 
supplies  furnished,  and  labor  performed,  in  constructing,  repair- 
ing, operating,  or  maintaining  a  railroad ;  but  not  money  loaned 
to  the  company  or  paid  to  its  creditors  at  its  request.  A  person 
advancing  money  upon  such  certificates  cannot  stand  in  the  place 
of  the  former  holders  in  respect  to  their  lien,  because  the  lien  is 
not  assignable  at  law.1 

III.  Statutes  of  the  several  States  giving  Lieris  upon  Railroads. 

In  a  great  majority  of  the  states  there  are  now  statutes  giving 
liens  specifically  upon  railroads  for  labor  performed  and  materials 
supplied  in  their  construction  or  operation.  These  statutes  are  so 
diverse  in  their  operation,  and  have  a  bearing  so  important  upon 
the  value  of  the  securities  issued  by  companies  whose  roads  are 
subject  to  these  laws,  that  it  is  deemed  best  to  give  the  leading 
provisions  of  these  statutes  in  full. 

583.  Alabama.2  —  Under  the  general  lien  law  any  person  per- 
forming any  work  upon  or  furnishing  any  material,  fixtures,  en- 
gine, boiler,  or  machinery  for  any  building,  erection,  or  improve- 
ment upon  land,  under  any  contract  with  the  owner  or  his  con- 
tractor or  'sub-contractor,  has  a  lien  for  the  same,  in  preference 
to  all  other  incumbrances  which  may  attach  subsequently  to  the 
commencement  of  such  buildings  or  improvements.  Such  lien 
attaches  to  the  buildings,  erections,  or  improvements  only,  in  pref- 
erence to  any  prior  lien,  incumbrance,  or  mortgage  upon  the  land  ; 
and  any  person  enforcing  such  lien,  where  there  is  a  prior  mort- 
gage or  lien  upon  the  land,  may  have  such  building,  erection,  or 
improvement  sold  under  execution,  and  the  purchaser  may  remove 
the  same  within  a  reasonable  time.  Every  original  contractor 
within  six  months,  and  every  day  laborer  within  thirty  days,  and 
every  other  person  within  four  months,  after  the  indebtedness 
has  accrued,  must  file  a  statement  of  the  demand  with  the  judge 
of  probate  of  (he  county. 

Alien  is  also  created  3  in  favor  of  laborers  and  employees  of 

i  Cairo  &  Vincennes  R.  It.  Co.  v.  Fack-         8  6ode    1870,  §  3181  ;   Act    March   19, 
ney,  78  III.  116.  1875. 

a  Code  187G,  pp.  777-782,  §§  3440-34G1. 

5G7 


§§  584,  585.]       LIENS  AFFECTING  PRIORITY  OF  RAILROAD  MORTGAGES. 

any  railroad  company  operated  in  the  state,  except  the  officers  of 
said  companies,  for  all  debts  due  to  them  for  work  and  labor  done 
and  performed  by  them  for  such  railroad  company  ;  and  such  lien 
extends  to  all  the  property,  rights,  effects,  and  credits  of  every 
description  of  such  railroad  company  situated  in  this  state. 

584.  California.1  —  Every  person  performing  labor  upon,  or 
furnishing?  materials  to  be  used  in  the  construction,  alteration,  or 
repair  of  any  building,  bridge,  railroad,  or  any  other  structure, 
has  a  lien  upon  the  same  for  work  or  labor  done  or  materials  fur- 
nished by  each  respectively,  whether  done  or  furnished  at  the 
instance  of  the  owner  of  the  building  or  other  improvement,  or 
his  agent ;  and  every  contractor,  sub-contractor,  architect,  builder, 
or  other  person  having  charge  of  the  construction,  alteration,  or 
repair,  either  in  whole  or  in  part,  of  any  building  or  other  im- 
provement, as  aforesaid,  shall  be  held  to  be  the  agent  of  the 
owner  for  the  purposes  of  this  chapter.  The  liens  are  preferred 
to  any  lien,  mortgage,  or  other  incumbrance  which  may  have  at- 
tached subsequent  to  the  time  when  the  building,  improvement, 
or  structure  was  commenced,  work  done,  or  materials  were  com- 
menced to  be  furnished  ;  also  to  any  lien,  mortgage,  or  other 
incumbrance,  of  which  the  lien-holder  had  no  notice,  and  which 
was  unrecorded  at  the  time  the  building,  improvement,  or  struct- 
ure was  commenced,  work  done,  or  the  materials  were  commenced 
to  be  furnished. 

Under  a  similar  statute  a  lien  for  work  or  materials  could  not 
be  acquired  on  a  portion  of  the  road,  but  must  be  filed  on  the 
entire  road.  One  contractor  or  sub-contractor  cannot  file  a  lien 
for  the  part  of  the  road  upon  which  he  worked  or  for  which  he 
furnished  material,  so  that  while  one  might  acquire  a  lien  upon 
a  bridge,  another  might  have  a  lien  upon  a  tunnel,  and  a  third 
upon  a  culvert.  Neither  does  the  statute  contemplate  that  there 
may  be  a  separate  lien  upon  each  mile  or  section  of  the  road.2 

585.  Colorado.3  —  All  mechanics,  laborers,  and  others  who 
perform  work  or  labor  or  furnish  materials  to  the  amount  of 
twenty-five  dollars  or  more,  for  the  construction  or  repairing  of 

1  Codes  and  Statutes   1876,  vol.  2,  §§        2  Cox  v.  Western  Pacific  R.  R.  Co.  44 
11,183, 11,186;  Approved  March  30, 1874.     Cal.  18  ;  S.  C.  47  lb.  87. 

»  Gen.  Laws  1877,  pp.  588,  591. 
568 


STATUTES   GIVING   LIENS   UPON  RAILROADS.  [§  586. 

any  railroad,  tram-way,  toll-road,  or  canal,  have  a  lien  upon  such 
railroad,  tram-way,  toll-road,  or  canal,  for  the  amount  and  value 
of  the  work  or  labor  so  performed,  or  material  furnished,  by  filing 
in  the  county  clerk  and  recorder's  office  of  the  county  in  which 
the  property  to  be  charged  with  such  lien  is  situated,  within  forty 
davs  after  such  railroad,  tram-way,  toll-road,  or  canal  shall  have 
been  completed,  a  statement  of  such  lien  ;  or  if  such  lien  is  claimed 
by  a  sub-contractor,  journeyman,  or  an}r  other  person  than  a  con- 
tractor performing  work  or  labor,  or  furnishing  materials,  then  by 
filing  such  statement  within  twenty  days  after  the  time  when  the 
last  work  or  labor  was  performed,  or  the  last  materials  were  fur- 
nished by  him,  and  by  serving  a  copy  of  such  statement  upon  the 
owner  or  owners  of  such  property,  or  the  agents  of  such  owner  or 
owners.  Any  lien  so  claimed  extends  to  and  includes  all  fran- 
chises, charter  privileges,  and  rights  of  way  that  may  anywise 
pertain  to  any  such  railroad,  tram-way,  toll-road,  or  canal.  The 
land  occupied  by  any  building  or  superstructure,  railroad,  tram- 
way, toll-road,  or  canal,  necessary  for  the  convenient  use  and  occu- 
pation of  the  same,  is  subject  to  the  liens  provided  for,  if  at  the 
time  the  work  or  labor  was  commenced,  or  the  first  materials  were 
furnished,  such  land  was  owned  by,  or  was  in  the  possession  of, 
under  a  bond  fide  claim  of  title,  the  person  or  persons  for  whom, 
or  at  whose  instance,  such  work  or  labor  was  performed,  or  mate- 
rials were  furnished  ;  but  if  such  person  hold  less  than  a  fee  sim- 
ple estate  in  such  land,  then  only  his  or  their  interest  therein  i3 
subject  to  such  lien.  The  liens  provided  for  are  preferred  to 
every  other  lien  or  incumbrance  which  shall  attach  upon  any 
property  made  subject  thereto  subsequent  to  the  time  when  the 
labor  or  work  was  commenced,  or  the  first  of  the  materials  were 
furnished,  and  also  to  all  mortgages  and  other  incumbrances  unre- 
corded at  the  time  such  work  or  labor  was  commenced,  or  the  first 
of  the  materials  were  furnished  ;  but  any  valid  incumbrance  upon 
any  such  land  duly  made  and  recorded  before  such  work  or  labor 
was  commenced,  or  the  first  of  such  materials  were  furnished,  re- 
mains unimpaired. 

586.  In  Connecticut1  every  railroad  for  the  construction  of 
which,  or  of  any  of  its  appurtenances,  any  person  shall  have  a 
claim  for  materials  furnished  or  Bervicea  rendered,  under  any  con- 

l  G.  S.  1875,  pp.  360,  361  ;  Act  I871/ch.  137. 

569 


§  587.]       LIENS   AFFECTING   PRIORITY    OF   RAILROAD   MORTGAGES. 

tract  with  or  approved  by  the  corporation  owning  or  managing 
such  road,  is  subject  with  its  real  estate,  right  of  way,  material, 
equipment,  rolling  stock,  and  franchise,  to  the  payment  of  such 
claim  ;  such  claim  takes  precedence  of  any  other  incumbrance 
originating  after  the  commencement  of  such  services  or  the  fur- 
nishing of  such  materials.  A  certificate  of  the  lien  must,  within 
sixty  days  after  the  performance  of  such  services,  or  the  furnishing 
of  such  materials  has  ceased,  be  filed  in  the  office  of  the  secretary 
of  state  in  a  book  kept  for  the  purpose. 

The  general  lien  law  of  the  state  extends  only  to  services  ren- 
dered or  materials  furnished  in  constructing  or  repairing  a  build- 
ing.1 This  statute,  however,  applies  to  buildings  of  a  railroad 
company.2  It  was  contended  in  one  case,  in  behalf  of  a  railroad 
company,  that  the  statute  could  not  apply  to  railroads  or  other 
enterprises  of  a  public  character ;  that  railroad  companies  are  pub- 
lic corporations,  created  by  positive  statute  for  public  use  ;  and 
that  the  easement  in  the  soil  is  taken  by  the  public  in  the  exer- 
cise of  the  right  of  eminent  domain  ;  and  therefore  the  exercise 
of  a  mechanic's  lien  is  incompatible  with  the  public  rights  in  the 
property,  and  inconsistent  with  the  objects  of  the  corporation. 
But  the  court  said  that  if  it  be  granted  that  the  easement  in  the 
soil  is  in  such  case  taken  in  the  exercise  of  the  right  of  eminent 
domain,  it  by  no  means  follows  that  the  soil  is  so  taken  with  an 
immunity  from  all  liens  and  incumbrances  upon  it,  or  with  an  im- 
munity from  liens  that  may  afterwards  be  put  upon  it  under  the 
general  lien  law.3  The  fact  that  the  legislature  subsequently  en- 
acted a  special  lien  law  in  favor  of  contractors  as  against  railroad 
companies  was  regarded  as  giving  countenance  to  the  view  that 
the  general  lien  law  was  intended  to  apply  to  those  corporations. 

587.  Dakota  Territory.4  —  Every  mechanic,  or  other  person 
who  shall  do  any  labor  upon,  or  furnish  any  materials,  machinery, 
or  fixtures  for  any  building,  erection,  or  other  improvements  upon 
land,  including  those  engaged  in  the  construction  or  repair  of  any 
work  of  internal  improvement,  by  virtue  of  any  contract  with  the 

1  G.  S.  1875,  p.  359,  §  9;  Statute  of  station  in  Danbury,  in  the  case  of  Bene- 
1855.  diet  v.  Danbury  &  Norwalk  R.  R.  Co.  24 

2  Botsford  v.  New  Haven,  Middletown     Conn.  320. 

&  Willimantic  R.  R.  Co.  41  Conn.  454.  4  r   q,  i877)  pp.  622,  624,  §§  655,  656, 

3  Without  the  question  being  raised,  664,  665,  666,  of  Code  of  Civil  Procedure, 
such  a  lien  was  enforced  upon  a  passenger 

570 


STATUTES   GIVING   LIENS    UPON   RAILROADS.  [§  588. 

owner,  his  agent,  trustee,  contractor,  or  sub-contractor,  has  a  lien 
upon  such  building,  erection,  or  improvement,  and  upon  the  land 
belonging  to  such  owner,  on  which  the  same  is  situated,  to  secure 
the  payment  of  such  labor  done,  or  materials,  machinery,  or  fixt- 
ures furnished.  Every  sub-contractor  wishing  to  avail  himself  of 
the  benefits  of  this  lien  must  give  notice  to  the  owner,  his  agent, 
or  trustee,  before  or  at  the  time  he  furnishes  any  of  the  things 
aforesaid  or  performs  any  labor,  of  his  intention  to  perform  the 
same,  and  the  probable  value  thereof.  The  liens  for  labor  done 
or  things  furnished  are  preferred  to  all  other  liens  and  incum- 
brances which  may  be  attached  to  or  upon  said  building,  erection, 
or  other  improvement,  and  to  the  land  on  which  the  same  is  situ- 
ated, or  either  of  them,  made  subsequent  to  the  commencement 
of  said  building,  erection,  or  other  improvement. 

The  entire  land  upon  which  any  such  building,  erection,  or 
other  improvement  is  situated,  including  that  portion  of  the  same 
not  covered  therewith,  is  subject  to  all  liens  so  ci'eated,  to  the  ex- 
tent of  all  the  right,  title,  and  interest  owned  therein  b}^  the  owner 
thereof,  for  whose  immediate  use  or  benefit  such  labor  was  done 
or  things  furnished.  The  lien  attaches  to  the  buildings,  erections, 
or  improvements,  for  which  they  were  furnished  or  done,  in  pref- 
erence to  any  prior  lien  or  incumbrance,  or  mortgage  upon  the 
land  upon  which  the  same  is  erected  or  put,  and  any  person  en- 
forcing such  lien  may  have  such  building,  erection,  or  other  im- 
provement sold  under  execution,  and  the  purchaser  may  remove 
the  same  within  a  reasonable  time  thereafter. 

588.  Georgia.1  —  All  contractors  to  build  railroads  have  a 
special  lien  upon  the  road  for  work  done  and  materials  furnished 
therefor.  The  lien  must  be  recorded,  within  three  months  after 
the  completion  of  the  work,  in  the  office  of  the  clerk  of  the  Su- 
perior Court.  Such  lien  is  inferior  to  other  general  liens,  when 
actual  notice  of  such  liens  have  been  communicated  before  the 
work  was  done  or  materials  furnished,  but  is  superior  to  all  other 
liens.  Persons  who  contract  with  a  railroad  in  the  capacity  of 
mechanics  have  a  lien  on  the  road  for  the  work  done,  but  QOl  if 
they  made  the  contract  in  the  capacity  of  contractors.2 

In  all  cases  where  the  business  of  any  corporation  operating  a 

1  Code  1873,  §§  1979, 1980;  Laws  1874,       2  Savannah,  Griffin  &  North  Ala.  B.  B, 
p.  45.  Co.  v.  Grant,  56  Ga,  68. 

.071 


§  589.]       LIENS   AFFECTING   PRIORITY    OF   RAILROAD   MORTGAGES. 

railroad,  either  wholly  or  partially  in  this  state,  shall,  by  an  order 
or  decree  of  any  court,  be  placed  in  the  hands  of  a  receiver  for 
the  benefit  of  the  creditors  or  stockholders  of  such  corporation,1 
it  shall  be  the  duty  of  said  receiver  to  apply  the  income  of  said 
railroad  to  the  payment  of  the  incidental  expenses  necessary  to  the 
carrying  on  said  business,  which  shall  include  the  wages  of  em- 
ployees, wood,  cross-ties,  and  other  material  furnished,  and  which 
may  be  necessary  for  conducting  said  business,  and  keeping  the 
property  in  repair,  and  the  damages  which  may  arise  from  the 
loss  or  injury  to  goods,  wares,  and  merchandise  received  by  said 
road  for  transportation,  and  for  injuries  to  persons  and  property 
caused  by  the  running  of  the  cars  on  said  road,  and  for  which  said 
road  is  made  liable,  as  common  carriers,  by  the  laws  of  this  state ; 
and  a  lien  is  accordingly  created  on  the  gross  income  of  said  road, 
while  in  the  hands  of  such  receiver,  in  favor  of  such  creditors  or 
claimants,  superior  to  all  other  liens  under  the  laws  of  this  state. 
If  the  receiver  be  removed,  or  a  vacancy  occur  in  the  office,  and 
a  successor  be  appointed,  it  is  made  his  duty  to  pay  the  liens  so 
provided  for,  according  to  their  date,  out  of  any  funds  in  his 
hands  as  such  receiver,  whether  such  liability  accrued  before  or 
after  his  appointment. 

589.  Illinois.2  —  All  persons  who  furnish  to  any  railroad  cor- 
poration, under  the  laws  of  this  state,  any  fuel,  ties,  material, 
supplies,  or  any  other  article  or  thing  necessary  for  the  construc- 
tion, maintenance,  operation,  or  repair  of  such  roads,  by  contract 
with  said  corporation,  or  who  do  and  perform  any  work  or  labor 
for  such  construction,  maintenance,  operation,  or  repair  by  like 
contract,  are  entitled  to  be  paid  for  the  same  as  part  of  the  cur- 
rent expenses  of  said  road ;  and  in  order  to  secure  the  same  have 
a  lien  upon  all  the  property,  real,  personal,  and  mixed,  of  said 
railroad  corporation  as  against  such  railroad,  and  as  against  all 
mortgages  or  other  liens  which  shall  accrue  after  the  commence- 
ment of  the  delivery  of  said  articles,  or  the  commencement  of  said 
work  or  labor.  Suit  must  be  commenced  within  six  months  after 
such  contractor  or  laborer  shall  have  completed  his  contract  with 
the  railroad  corporation,  or  after  such  labor  shall  have  been  per- 
formed or  material  furnished. 

Laws  1876,  p.  122,  §§  1,  2.  »  R.  S.  1877,  p.  671  ;  Act  of  April  3, 

1872. 

572 


STATUTES   GIVING   LIENS   UPON  RAILROADS.  [§  590. 

A  sub-contractor,  material-man,  or  laborer,  who  furnishes  to 
any  contractor  with  any  such  railroad  corporation  any  fuel,  ties, 
materials,  supplies,  or  any  other  article  or  thing,  or  who  performs 
any  work  or  labor  for  such  contractor  in  conformity  with  any 
terms  of  any  contract,  express  or  implied,  which  such  contractor 
may  have  made  with  any  such  railroad  corporation,  has  a  lien  upon 
all  the  property,  real,  personal,  and  mixed,  of  said  railroad  cor- 
poration. No  such  lien  takes  priority  over  any  existing  lien.  The 
person  performing  such  labor,  or  furnishing  such  material,  must 
cause  a  notice,  in  writing,  of  his  intention  to  claim  a  lien,  to  be 
served  on  the  president  or  secretary  of  such  railroad  corporation. 

This  act  giving  sub-contractors  a  lien  upon  railroads  for  labor 
and  materials  furnished  relates  only  to  labor  and  materials  fur- 
nished after  its  passage.1  Under  the  previous  act2  no  one  was 
entitled  to  a  lien  unless  his  contract  was  directly  with  the  railroad 
company.3  A  sub-contractor  is  not,  under  the  present  law,  en- 
titled to  a  lien  on  a  railroad,  unless  he  complies  with  the  statute 
in  regard  to  giving  notice.4 

Under  the  railroad  lien  law  of  Illinois  there  is  no  lien  in  favor 
of  any  one  who  may  have  done  labor  for  or  furnished  materials  or 
supplies  to  sub-contractors.  The  statute  having  no  apt  words  to 
extend  the  liens  given  beyond  sub-contractors,  the  court  has  no 
right  by  judicial  construction  to  extend  the  meaning  of  the  act 
beyond  the  intention  plainly  expressed.  No  lien  exists  against  a 
railroad  in  favor  of  remote  contractors.5 

590.  Indiana.6  —  The  employees  of  any  corporation  doing 
business  in  this  state,  whether  organized  under  the  laws  of  the 
state  or  otherwise,  are  entitled  to  have  and  hold  a  first  and  prior 
lien  upon  the  corporate  property  of  such  corporation,  and  the  earn- 
ings thereof,  for  all  work  and  labor  done  and  performed  by  such 
employees  for  such  corporation,  from  the  date  of  their  employ- 
ment by  such  corporation,  which  lien  is  prior  to  any  and  all   liens 

1  B.  S.  1874,  p.  C7l,  §  52.  141  ;  S.  C.  5  Reporter,  261  ;  and  Bee  Roth- 

'-  February 22, 1861.  gerber  v.   Dupuy,  64  HI.  452;    Ahem  v. 

a  ArbuckJew.  111.  Midland  Ry.  Co.  81  Evans,  66  111.  125 ;    Newhall  v.  K 

111.  429.  70  III.  156. 

*  Cairo  &  St.  Louis  R.  R.  Co.  i>.  Cauble,        ,;  Acts  Special  S.'-si.m   is;:,  ,h.  9,  p. 

85  111.  5.05.  27.     For  former  statute,  see  1  R.  S.  1876, 

6  Cairo  &  St.  Louis  R.   R.  Co.  v.  Wat-  p.  70'J. 
son,  85  111.  531  ;     11    Chicago    Leg.   News, 

573 


§  591.]       LIENS   AFFECTING   PRIORITY    OF   RAILROAD   MORTGAGES. 

created  or  acquired  subsequent  to  the  date  of  the  employment  of 
such  employees  by  such  corporation.  Any  employee  wishing  to 
acquire  such  lien  upon  the  corporate  property  of  any  corporation, 
or  the  earnings  thereof,  whether  his  claim  be  due  or  not,  must 
file  in  the  recorder's  office  of  the  county,  where  such  corporation  is 
located  or  doing  business,  notice  of  his  intention  to  hold  a  lien 
upon  such  property  and  earnings  aforesaid,  for  the  amount  of  his 
claim,  setting  forth  the  date  of  such  employment,  the  name  of  the 
corporation,  and  the  amount  of  such  claim  ;  and  the  lien  so  created 
relates  to  the  time  when  such  employee  was  employed  by  such 
corporation,  or  to  any  subsequent  date  during  such  employment, 
at  the  election  of  such  employee,  and  has  priority  over  all  liens 
suffered  or  created  thereafter,  except  other  employees'  liens,  over 
which  there  is  no  such  priority. 

Any  employee  having  acquired  such  lien  may  enforce  the  same 
by  filing  his  complaint  therefor  in  the  Circuit  or  Superior  Court 
in  any  county  where  such  lien  was  acquired,  at  any  time  within 
six  months  from  the  date  of  acquiring  such  lien,  or  if  a  credit  be 
given,  from  the  date  of  such  credit,  and  the  court  rendering  judg- 
ment for  such  claim  shall  declare  the  same  a  lien  upon  such  prop- 
erty, and  order  the  same  sold  to  pay  and  satisfy  such  judgment 
and  cost. 

591.  Iowa.1 — Every  mechanic  or  other  person  who  does  any 
labor  upon,  or  furnishes  any  materials,  machinery,  or  fixtures  for 
any  building,  erection,  or  other  improvement  upon  land,  including 
those  engaged  in  the  construction  or  repair  of  any  work  of  inter- 
nal improvement,  by  virtue  of  any  contract  with  the  owner,  his 
agent,  trustee,  contractor,  or  sub-contractor,  upon  complying  with 
the  provisions  of  the  statute,  has,  for  his  labor  done,  or  materials, 
machinery,  or  fixtures  furnished,  a  lien  upon  such  building,  erec- 
tion, or  improvement,  and  upon  the  land  belonging  to  such  owner 
on  which  the  same  is  situated,  to  secure  the  payment  of  such  labor 
done,  or  materials,  machinery,  or  fixtures  furnished. 

And  when  such  material  has  been  furnished,  or  labor  performed, 
in  the  construction,  repair,  or  equipment  of  any  railroad,  canal, 
viaduct,  or  other  similar  improvement,  the  lien  therefor  extends 
and  attaches  to  the  erection,  excavations,  embankments,  bridges, 

1  Laws  1876,  ch.  100.  The  first  para-  statute.  Code  1873,  title  14,  ch.  8,  first 
graphs  are  the  same  as  in   the  previous     enacted  April  3,  1860. 

574 


STATUTES   GIVING  LIENS   UPON  RAILROADS.  [§  591. 

road-bed,  and  all  land  upon  which  the  same  may  be  situated,  in- 
cluding the  rolling  stock  thereto  appertaining  and  belonging ;  all 
of  which,  except  the  easement  or  right  of  way,  constitutes  the 
building,  erection,  or  improvement  provided  and  mentioned  in  this 
statute. 

An  account  or  statement  of  the  lien  must  be  filed  with  the 
clerk  of  the  District  Court  of  the  county,  verified  by  affidavit.  A 
principal  contractor  must  file  such  statement  within  ninety  days 
from  the  date  on  which  the  last  material  was  furnished,  or  the  last 
labor  was  performed  ;  and  when  the  lien  is  claimed  on  a  railroad, 
a  sub-contractor  has  sixty  days  from  the  last  day  of  the  month  in 
which  the  labor  was  done,  or  material  furnished,  within  which  to 
file  his  claim. 

Such  liens  are  preferred  to  all  other  liens  and  incumbrances 
which  maybe  attached  to  or  upon  such  building,  erection,  or  other 
improvements,  or  either  of  them,  and  to  the  land  upon  which  they 
are  situated,  made  subsequent  to  the  commencement  of  said  build- 
ing, erection,  or  other  improvement.1  These  liens  attach  to  the 
buildings,  erections,  or  improvements  for  which  they  were  fur- 
nished or  done,  in  preference  to  any  prior  lien  or  incumbrance,  or 
mortgage  upon  the  land  upon  which  such  erection,  building,  or  im- 
provement belongs,  or  is  erected  or  put.  If  such  material  was  fur- 
nished, or  labor  performed,  in  the  erection  or  construction  of  an 
original  and  independent  building,  erection,  or  other  improvement 
commenced  since  the  attaching  or  execution  of  such  prior  lien,  in- 
cumbrance, or  mortgage,  the  court  may,  in  its  discretion,  order  and 
direct  such  building,  erection,  or  improvement  to  be  separately 
sold  under  execution,  and  the  purchaser  may  remove  it  within 
such  reasonable  time  as  the  court  may  fix.  But  if,  in  the  dis- 
cretion of  the  court,  such  building  or  improvement  should  not  be 
separately  sold,  the  court  takes  an  account  and  ascertains  the  sep- 
arate values  of  the  land,  and  the  erection,  building,  or  other  im- 
provement, and  distributes  the  proceeds  of  sale  so  as  to  secure  to 
the  prior  mortgage  or  other  lien  priority  upon  the  land,  and  to  bhe 
mechanic's  lien  priority  upon  the  building,  erection,  or  other  Lm- 

1  Sco  §  577.    'Die  contract  is  regarded  time  for  notice  expires  ninetydays  from 

as  entire,  ami  where  there  is  a  continu-  the  date  of  the  conclusion  of  the  work. 

oosopen  account,  the  cause  "f  aetion  is  Jones  v.  Swan,  21  fowa,  181;    Delaware 

deemed  to  have  accrued  as  to  all  tint  items  I  lonstruction  <  !o.  v.  Davenport  &  Si.  Paul 

on  the  day  of  the  hut ;    ami   therefore  the  Ry.  Co.  4G  Iowa,  40D. 

575 


§  592.]       LIENS   AFFECTING   PRIORITY    OF   RAILROAD    MORTGAGES. 

provement.  If  the  material  furnished,  or  labor  performed,  was 
for  additions  to,  repairs  of,  or  betterments  upon  buildings,  erec- 
tions, or  other  improvements,  the  court  takes  an  account  of  the 
values  before  such  material  was  furnished,  or  labor  performed,  and 
the  enhanced  value  caused  by  such  additions,  repairs,  or  better- 
ments, and  upon  the  sale  of  the  premises  distributes  the  proceeds 
of  sale  so  as  to  secure  the  prior  mortgage  or  lien  priority  upon  the 
land  and  improvements  as  they  existed  prior  to  the  attaching  of 
the  mechanic's  lien,  and  to  the  mechanic's  lien  priority  upon  the 
enhanced  value  caused  by  such  additions,  repairs,  or  betterments. 
In  case  the  premises  do  not  sell  for  more  than  sufficient  to  pay  off 
the  prior  mortgage  or  other  lien,  the  proceeds  are  applied  on  the 
prior  mortgage  or  other  lien. 

It  is  also  provided  that  a  judgment  against  any  railway  corpo- 
ration for  any  injury  to  any  person  or  property  shall  be  a  lien 
within  the  county  where  recovered  on  the  property  of  such  corpo- 
ration, and  such  lien  shall  be  prior  and  superior  to  the  lien  of  any 
mortgage  or  trust  deed  executed  since  the  fourth  day  of  July, 
1862,  the  time  when  the  original  statute  went  into  effect.1  Under 
this  statute,  the  purchaser  of  railroad  bonds  secured  by  mortgage 
is  required  to  take  notice  that  his  lien,  although  prior  in  time, 
must  be  postponed  to  judgments  for  injuries  to  persons  or  prop- 
erty occurring  at  any  time  after  the  execution  of  the  mortgage, 
so  long  as  the  property  is  in  the  possession  of  the  company.  But 
the  right  of  action  is  not  a  lien,  nor  is  an  action  pending  a  lien. 
The  lien  does  not  attach  until  a  judgment  is  rendered.  There- 
fore, if  the  mortgaged  property  be  sold  under  a  decree  of  fore- 
closure before  judgment  is  recovered,  the  company  has  then  no 
title  to  the  property,  and  no  lien  can  attach  to  it.  There  is 
nothing  in  the  statute  charging  a  purchaser  at  the  foreclosure  sale 
with  notice  of  the  action,  or  making  the  claim  at  the  time  of  the 
injury  or  at  the  time  of  commencing  the  action  a  lien  upon  the 
company's  property.  The  action  is  purely  personal.  Until  judg- 
ment is  rendered,  any  one  may  purchase  the  company's  property 
unaffected  by  the  action.2 

592.  Kansas.3  —  Whenever   any  railroad  company  contracts 

1  Code  1873,  §  1309.  3  Laws  1872,  ch.  136,  §   1 ;  2  Dassler's 

2  Burlinyton,  Cedar  Rapids  &  North-     Stat.  1876,  §  4610. 
ern  It.  R.  Co.  7  Cent.  L.  J.  65. 

576 


STATUTES   GIVING   LIENS  UPON   RAILROADS.  [§  593. 

with  any  person  for  the  construction  of  its  road  or  any  part 
thereof,  such  railroad  company  is  required  to  take  from  the  per- 
son with  whom  such  contract  is  made  a  good  and  sufficient  bond, 
conditioned  that  such  person  shall  pay  to  laborers,  mechanics, 
and  material-men,  and  persons  who  supply  such  contractor  with 
provisions  or  goods  of  any  kind,  all  just  debts  incurred  in  car- 
rying on  such  work,  due  to  such  persons,  or  to  any  person  to 
whom  any  part  of  such  work  is  given,  which  bond  shall  be  filed 
by  such  railroad  company  in  the  office  of  the  register  of  deeds  in 
each  county  where  the  work  of  such  contractor  shall  be  ;  and  if 
any  such  railroad  company  shall  fail  to  take  such  bond,  such  rail- 
road company  is  liable  to  the  persons  before  mentioned  to  the  full- 
extent  of  all  such  debts  so  contracted  by  such  contractor. 

Under  this  statute  the  company  rather  than  the  laborers  and 
mechanics  is  the  proper  obligee.  The  liability  of  a  railroad  com- 
pany in  such  case  is  purely  statutory,  and  a  party  seeking  to  en- 
force the  liability  must  show  all  the  facts  required  by  the  statute. 
If  the  bond  contains  all  the  conditions  provided  for,  it  is  not  viti- 
ated by  an  additional  stipulation  to  save  the  company  harmless 
from  all  trouble,  damage,  costs,  suits,  by  reason  of  the  debts.1  A 
railroad  company  failing  to  take  the  bond  required  is  liable  not 
merely  to  the  laborers  personally,  but  to  any  persons  to  whom 
they  may  transfer  their  claims.2 

This  statute  applies  not  merely  when  a  railroad  company  is  en- 
gaged in  the  construction  of  its  first  and  main  track,  but  also 
whenever  it  is  enlarging  its  road  by  the  addition  of  side  tracks.3 

593.  Kentucky.4  —  A  lien  is  given  in  favor  of  any  person  who 
performs  labor  or  furnishes  materials  for  the  erection,  altering,  or 
repairing  of  a  house,  building,  or  other  structure,  or  the  improve- 
ment in  any  manner  of  real  estate  by  contract  with  the  owner. 
When  the  labor  is  done  for  a  contractor  or  sub-contrartor  no  lien 
attaches,  unless  notice  in  writing  be  given  to  the  owner  that  ;i 
lien  will  be  claimed.  The  lien  is  dissolved  unless  the  claimant, 
within  sixty  days  after  he  ceases  to  labor  or  furnish  materials, 
files  a  statement  in  the  office  of  the  clerk  of  the  comity  court  of 

1  Atchison,  Topeka  &  Santa   IV  R.  K.        b  Missouri,  K;i"  •'    'v-   Texas  Ry.  Co.  v. 

Co.  14  Ivans.  212.  Br<  tpra. 

'-  Missouri,  Kansas  &  Texas  By.  Co.  v.        4  Gen.  Stats.  1878,  ch.  70,  pp.  620  684 
Brown,  ll  Cans.  557. 

a?  677 


§  593.]      LIENS   AFFECTING   PRIORITY    OF   RAILROAD   MORTGAGES. 

the  county.  The  lien  is  not  effectual  against  a  bond  fide  pur- 
chaser for  value  without  notice,  actual  or  constructive.1 

When  the  property  or  effects  of  any  railroad  company  2  are  as- 
signed for  the  benefit  of  creditors,  or  come  into  the  hands  of  any 
receiver  of  a  court,  trustee,  or  assignee,  for  the  benefit  of  creditors, 
or  anywise  come  to  be  distributed  among  creditors,  whether  by 
operation  of  law  or  by  the  act  of  such  company,  owner,  or  oper- 
ator, the  employees  of  such  company,  owner,  or  operator  in  such 
business,  and  the  persons  who  have  supplied  materials  or  supplies 
for  the  carrying  on  of  such  business,  have  a  lien  upon  so  much 
of  such  property  and  effects  as  may  have  been  embarked  in  such. 
business,  and  all  the  accessories  connected  therewith,  including 
the  interest  of  such  company,  owner,  or  operator  in  the  real  estate 
used  in  carrying  on  such  business. 

This  lien  is  superior  to  the  lien  of  any  mortgage  or  other  in- 
cumbrance, and  exists  for  the  whole  amount  due  such  employees 
as  such,  or  due  for  such  materials  and  supplies.  No  president  or 
other  chief  officer,  nor  any  director  or  stockholder  of  any  such 
company,  is  deemed  an  employee  within  the  meaning  of  this  act. 

When  the  trustee  or  other  person  having  the  administration 
or  distribution  of  such  property  or  effects  continues  the  oper- 
ation of  the  business,  it  is  his  duty,  at  the  end  of  each  calendar 
month,  after  payment  of  current  expenses,  and  after  payment 
of  any  debt  due  the  United  States  or  the  State  of  Kentucky, 
to  distribute  the  remaining  money  in  his  hands  among  the 
persons  to  whom  this  lien  is  given  pro  rata,  except  twenty  per 
cent,  thereof,  which  he  may,  if  necessary,  reserve  for  contingent 
expenses. 

All  persons  whose  property  has  been  injured  by  the  carelessness 
of  a  railroad  company  or  its  employees  have  a  like  lien  for  the  re- 
covery of  damages  for  such  injury,  and  the  statute  of  limitations 
for  such  injuries  is  the  same  against  a  railroad  company  as  that 
provided  against  natural  persons. 

Whenever  a  railroad  is  sold  or  taken  into  possession  by  any 
court  of  equity,  or  other  court  having  jurisdiction,  the  wages  due 
to  employees  by  said  corporation,  for  work  done  within  three 
months  next  before  such  sale  or  seizure,  and  claims  for  compensa- 

1  A  mortgagee  is  entitled  to  the  rights  of         -  Laws  1876,  ch.  902. 
a  purchaser  under  this  act.     Gere  v.  Crush- 
ing, 5  Bush  (Ky.),  .304. 

578 


STATUTES   GIVING   LIENS   UPON   RAILROADS.      [§§  594,  595. 

tion  for  injuries  to  persons  or  property  inflicted  in  operating  said 
railroad,  within  six  months  next  before  such  sale  or  seizure,  are 
a  first  lien  and  must  be  first  paid  from  the  proceeds  of  sale,  or  of 
net  earnings  of  the  railroad  while  in  possession  of  the  court.1 

594.  In  Maine2  it  is  provided  that  every  railroad  company, 
in  making  contracts  for  the  building  of  its  road,  shall  require 
sufficient  security  from  the  contractors  for  the  payment  of  all 
labor  thereafter  performed  in  constructing  the  road  by  persons 
in  their  employ  ;  and  such  company  shall  be  liable  to  the  labor- 
ers employed  for  labor  actually  performed  on  the  road,  if  they, 
within  twenty  days  after  the  completion  of  such  labor,  shall,  in 
writing,  notify  its  treasurer  that  they  have  not  been  paid  by  the 
contractors. 

595.  Maryland.  —  The  general  lien  law  applies  to  buildings 
only.  Coal  cars  were  held  not  to  be  subjects  of  a  mechanic's  lien 
under  a  statute  which  provided  that  every  machine  erected,  con- 
structed, or  repaired  should  be  subject  to  a  lien  in  like  manner 
with  buildings ;  even  admitting  that  coal  cars  could  be  called  ma- 
chines, the  statute  was  construed  to  apply  only  to  fixed  or  station- 
ary machinery.3  Such  a  statute  is  to  be  construed  with  reference 
to  the  general  purpose  of  lien  laws  in  favor  of  mechanics.  By 
the  common  law  mechanics  who  erected  a  house  or  stationary  ma- 
chinery lost  all  claim  upon  the  property  as  soon  as  it  became  fixed 
to  the  realty  ;  and  the  lien  provided  by  statute  was  designed  to 
obviate  the  insecurity  arising  from  the  vesting  of  the  title  in  the 
owner  of  the  realty  without  any  voluntary  delivery  of  the  prop- 
erty by  the  mechanics  who  had  done  the  work  and  furnished  the 
materials  for  the  additions  to  the  realty.  But  the  reason  of  the 
law  does  not  apply  to  movable  machines.  With  reference  to 
these  the  law  affords  ample  and  complete  security  to  the  mechanic 
by  leaving  in  him  the  right  of  property,  or  in  the  case  of  repairs 
done,  giving  him  a  lien  thereon  while  they  remain  in  his  posses- 
sion ;  and  he  has  the  right  to  retain  the  possession  and  his  right 
of  property  or  his  lien,  until  his  claim  for  construction  or  repair  is 
paid. 

1  Lawa  1876,  ch.  319.  8  New  England  Car  Spring  Co.  v.  Balti« 

2  Act,  1S77,  c!i.  186.  more  &  Ohio  R.  R.  <  '"■  LI  Md.  81. 

579 


§§  596,  597.]       LIENS  AFFECTING  PRIORITY  OF  RAILROAD  MORTGAGES. 

596.  In  Massachusetts  1  any  person  to  whom  a  debt  is  due 
for  labor  performed  or  for  materials  furnished  and  actually  used 
in  constructing  any  railroad  by  virtue  of  an  agreement  with  the 
owner  of  such  railroad,  or  with  any  person  having  authority  from 
or  rightfully  acting  for  such  owner  in  procuring  or  furnishing 
such  labor  or  materials,  has  a  right  of  action  against  the  owner 
of  such  railroad  to  recover  such  debt  with  costs ;  provided  that 
no  one  shall  have  an  action  for  labor  performed  unless  he  shall, 
within  thirty  days  after  ceasing  to  perform  such  labor,  serve  on 
the  owner  of  the  railroad  a  written  statement  under  oath  of  the 
amount  of  the  debt,  and  of  the  name  of  the  person  for  whom  and 
by  whose  employment  the  labor  was  performed,  by  causing  such 
statement  to  be  filed  in  the  office  of  the  clerk  of  the  city  or  town 
where  the  labor  may  have  been  performed  ;  and  provided  that  no 
one  shall  have  a  right  of  action  for  materials  furnished  unless  be- 
fore beginning  to  furnish  the  same  he  shall  have  served  written 
notice  of  his  intention  to  claim  such  right  in  the  same  manner. 
No  contractor  for  the  whole  or  any  part  of  such  railroad  can  have 
such  right  of  action,  unless  his  contract  is  with  the  owner  of  the 
railroad.  Action  must  be  commenced  within  sixty  days  after  the 
claimant  has  ceased  to  perform  the  labor  or  furnish  the  materials. 

This  statute  applies  to  a  person  performing  labor  under  an 
agreement  with  a  contractor,  who  acts  under  a  contract  with  the 
owner  of  the  railroad.  While  sub-contractors  have  no  right  of 
action  under  this  statute,  persons  employed  by  them  or  furnish- 
ing them  materials  are  protected.2 

This  statute  does  not  afford  any  remedy  to  a  person  to  whom 
a  debt  is  due  for  labor  performed  in  constructing  a  railroad,  by 
virtue  of  an  agreement  with  a  contractor  whose  contract  with  the 
owner  of  the  railroad  was  made  before  the  passage  of  the  statute, 
although  the  labor  was  performed  after  the  statute  took  effect.3 

597.  Michigan.4  —  It  is  lawful  for  all  railroad  companies, 
when  contracts  are  made  by  them  with  any  contractors  for  work, 
labor,  or  materials  to  be  used  in  repairing  or  constructing  rail- 
roads, to  provide  in  the  contracts  for  the  payment  of  laborers 
and  persons  furnishing  material  to  such  contractors  or  to  sub-con- 

1  Acts  of  1873,  ch.  353.  8  Parker  v.  Mass.  R.  R.  Co.  115  Mass. 

2  Hart  v.  Boston,  Revere  Beach  &  Lynn     580. 

R.  R.  Co.  121  Mass.  510.  *  Compiled  Laws  1871,  pp.  786,  787. 

580 


STATUTES   GIVING   LIENS  UPON  RAILROADS.  [§  598. 

tractors  ;  and  if  no  such  provision  is  made,  it  is  lawful  for  the 
railroad  companies  to  withhold  payment  until  such  laborers  and 
persons  furnishing  material  are  paid ;  and  it  is  the  duty  of  such 
railroad  companies,  by  agent  or  otherwise,  at  each  pay-day,  to 
see  that  all  laborers  and  persons  furnishing  material  employed 
by  any  such  contractors  or  sub-contractors  are  paid  before  pay- 
ment is  made  to  such  contractors,  not  to  exceed,  however,  the 
amount  due  to  the  contractors.  The  provisions  of  this  act  do  not 
apply  to  any  iron  or  other  materials  and  property  used  in  ironing 
and  equipping  the  railroad.  A  bill  of  items  of  the  material  and 
labor  furnished  to  such  contractor  or  sub-contractors  shall  be  fur- 
nished to  the  company  through  their  agent,  or  otherwise,  together 
with  the  amount  claimed  prior  to  the  usual  pay-day  of  said  com- 
pany, when  such  claim  shall  be  due,  or  in  case  the  said  contract- 
ors are  not  then  paid,  then  prior  to  the  payment  then  due.  On 
compliance  with  the  provisions  of  this  act,  the  persons  perform- 
ing the  labor,  or  furnishing  the  materials,  have  the  right  to  col- 
lect pay  for  the  same  from  the  railroad  companies  by  action,  as  in 
case  of  other  claims  against  such  railroad  companies,  if  the  said 
claim  or  claims  are  undisputed  and  acknowledged  to  be  due  from 
said  contractor  or  sub-contractor. 

All  the  stockholders  of  any  such  company  are  individually  lia- 
ble for  all  the  labor  performed,1  but  they  are  not  liable  to  an 
action  therefor  until  an  execution  shall  be  returned  unsatisfied, 
in  whole  or  in  part,  against  the  corporation,  and  the  amount  due 
on  such  execution  shall  be  primd  facie  evidence  of  the  amount 
recoverable  with  cost  against  any  such  stockholder  ;  and  every 
stockholder  against  whom  any  such  recovery  for  labor,  ties,  wood, 
and  supplies  shall  have  been  had,  has  the  right  to  recover  the 
same  of  the  other  stockholders  of  the  corporation,  in  ratable  pro- 
portion to  the  amount  of  stock  they  shall  respectively  hold.2 

598.  Minnesota.3 —  Whenever  any  railroad  company  con- 
tracts with  any  person  for  the  construction  or  repairing  «»f  its 
road,  or  any  part  thereof,  such  railroad  company  shall   take  from 

the  person  with  whom  such  contract  is  made  a  g 1  and  sufficient 

bond  with  sureties,  conditioned  that  such  person  si ia II    pay  all   la- 

i  Const.  1850,  art.  xv.  §  7.  8  Laws  1878,  cb    29,  ^  1,  -\  •'!  ;   1  Btatl. 

2  Compiled   Laws   1871,   p.  580;  Laws     at  Large  1878,  p.  486. 
1873,  p.  540. 

681 


§  599.]      LIENS   AFFECTING   PRIORITY   OF   RAILROAD   MORTGAGES. 

borers  and  mechanics  all  just  debts  due  to  such  persons,  or  to  any 
person  to  whom  any  part  of  such  work  is  given,  incurred  in  carry- 
ing on  such  work,  which  bond  or  a  certified  copy  thereof  shall  be 
filed  by  said  railroad  company,  in  the  office  of  the  register  of 
deeds  in  each  county  where  the  work  of  such  contractor  shall  be. 
All  persons  to  whom  such  contractor  shall  be  indebted  for  work 
as  aforesaid,  and  every  railroad  company  which  shall  have  paid 
any  debt,  claim,  or  demand,  as  provided  by  this  act,  shall  have  an 
action  on  said  bond,  to  the  full  amount  of  debts  awarded  against 
such  contractors.  And  if  any  such  railroad  company  shall  fail  to 
take  and  file  such  bonds,  or  if  any  contractor  or  sub-contractor 
shall  be  indebted  for  work  or  services  as  aforesaid,  said  railroad 
company  shall  be  liable  to  the  persons  mentioned  to  the  full  ex- 
tent of  all  such  debts  so  contracted.  Such  laborers  or  mechan- 
ics or  other  persons  shall  give  the  notice  and  take  the  action  pre- 
scribed in  this  act.  Whenever  any  person,  being  contractor  or 
sub-contractor,  employed  by  or  in  pursuance  of  the  terms  of  any 
contract  with  any  railroad  company  for  the  construction  or  re- 
pairing of  any  portion  of  any  railroad,  shall  be  indebted  to  any 
laborer  or  mechanic  for  services  rendered,  such  railroad  company 
shall  be  liable  to  pay  such  laborer  or  mechanic  the  amount  of  such 
debt,  provided  such  laborer  or  mechanic  shall  have  given  notice 
to  such  railroad  company  within  thirty  days  after  such  debt  shall 
have  accrued  that  he  has  such  debt,  and  provided  such  debt  shall 
have  accrued  within  sixty  days  prior  to  the  giving  of  such  notice. 
Such  notice  shall  be  in  writing,  and  shall  specify  the  particular 
nature  and  amount  of  such  debt,  claim,  or  demand,  and  shall  be 
delivered  to  the  secretary  or  chief  engineer  in  charge  of  the  con- 
struction or  repairing  of  that  portion  of  the  road  upon  which  such 
labor  was  performed,  either  personally,  or  by  leaving  the  same  at 
the  office  or  usual  place  of  business  of  such  secretary  or  engineer. 
No  action  shall  be  maintained  against  any  railroad  company  under 
the  provisions  of  this  act,  unless  the  same  is  commenced  within 
sixty  days  after  the  service  of  notice  aforesaid. 

599.  Missouri.1  —  All  persons  who  shall  do  any  work  or  labor 
in  constructing  or  improving  the  road-bed,  rolling  stock,  station- 
houses,  depots,  bridges,  or  culverts  of  any  railroad  company  in- 
corporated under  the  laws  of  this  state,  or  owning  or  operating  a 
1  Laws  1873,  pp.  58,  59;  Myer's  Supplement  to  Wagner's  Stats.  1877,  p.  76. 

582 


STATUTES    GIVING   LIENS   UPON   RAILROADS.  [§  599. 

railroad  within  this  state,  and  all  persons  who  shall  furnish  ties, 
fuel,  bridges,  or  materials  to  such  railroad  company  shall  have, 
for  the  work  done  and  labor  performed,  and  for  the  materials  fur- 
nished, a  lien  upon  the  road-bed,  station-houses,  depots,  bridges, 
rolling  stock,  real  estate,  and  improvements  of  such  railroad,  upon 
complying  with  the  provisions  hereinafter  mentioned  ;  provided 
such  work  and  labor  is  performed,  and  such  materials  are  fur- 
nished, under  and  in  pursuance  of  a  contract  with  such  railroad 
company,  its  agents,  contractors,  sub-contractors,  lessees,  trustees, 
or  construction  company  organized  for  the  uses  and  purposes  of 
such  railroad  company,  or  having  in  charge  the  building,  construc- 
tion, or  improvement  of  such  railroad,  or  any  part  thereof. 

This  lien  attaches  to  the  buildings,  erections,  improvements, 
road-bed,  and  property  mentioned,  from  the  date  of  the  com- 
mencement of  such  work  and  labor,  or  from  the  time  such  mate- 
rials were  furnished  or  delivered,  and  is  prior  to  all  mortgages  or 
incumbrances  placed  upon  the  property  affected  by  this  lien  sub- 
sequent to  the  passage  of  this  act. 

It  is  the  duty  of  all  persons  claiming  the  benefit  of  such  lien, 
within  ninety  clays  next  after  the  completion  of  the  work,  or  after 
the  materials  were  furnished,  to  file  in  the  office  of  the  circuit 
clerk  of  any  county  through  which  said  railroad  is  located  a  just 
and  true  account  of  the  amount  due,  after  all  just  credits  have 
been  given,  which  account  shall  state  the  amount  claimed  as  due, 
the  general  nature  of  the  work,  amount  of  labor  performed,  or  of 
materials  furnished ;  the  dates  when  the  work  was  done,  and 
when  materials  were  furnished,  and  the  place  or  places  at  which 
said  labor  and  work  was  performed,  or  said  materials  were  fur- 
nished ;  the  name  or  names  of  the  parties  with  whom  the  contract 
for  said  work  or  furnishing  said  materials  was  made,  and  also  the 
name  of  the  railroad  against  which  said  lien  is  intended  to  apply  : 
and  it  is  the  duty  of  all  persons  claiming  said  lien,  within  said 
ninety  days,  to  serve  a  copy  of  the  above  account  on  the  person 
or  corporation  owning  or  operating,  or  having  charge  of  said  road, 
or  of  the  property  to  which  said  lien  attaches. 

All   railroad   companies   and  other  corporations3  an-  required 

to  make  payment  to  their  employees  and  other  operatives  <>i"  the 

wages  due  for  all  labor  and  services  performed   bj  them,  within 

three  months  next  preceding  a  demand   made  therefor,   nut    ex- 

1  Laws  1877,  pp.  348,  349  ;  Myer'fl  Supplement  to  Wagner's  Btats.  Is",  p.  79. 

588 


§  599.]      LIENS   AFFECTING   PRIORITY    OF   RAILROAD   MORTGAGES. 

ceeding  sixty  dollars,  in  preference  to  any  other  claim,  debts,  or 
demands  whatsoever,  not  secured  by  specific  liens  on  property, 
and  such  priority  of  payment  may  be  enforced  by  civil  action; 
and  payments  of  wages  are  inquired  to  be  made  on  or  before  the 
fifteenth  day  of  each  month,  for  the  full  amount  of  all  wages 
earned  previous  to  the  first  day  of  that  month,  with  interest  at  six 
per  centum,  if  not  paid,  to  be  added  to  the  amount  of  such  wages 
when  paid  or  recovered  by  suit.  All  debts  due  employees  or 
operatives  for  wages  of  their  labor  have  priority  of  payment  from 
the  money  and  assets  of  the  corporations  in  the  hands  of  officers 
or  agents,  or  of  any  receiver  or  assignee,  over  every  other  claim 
not  specifically  secured.  Every  corporation,  officer,  agent,  re- 
ceiver, assignee,  or  person  holding  money  or  assets,  refusing  to 
recognize  the  priority  of  employees'  claims,  is  liable  to  such  em- 
ployees for  the  amount  of  all  loss  and  damages  occasioned  by  his 
unlawfully  withholding  the  money. 

Whenever  any  contractor  for  the  construction  of  any  part  of  a 
railroad1  which  is  in  process  of  construction,  or  any  conti'actor  for 
repairing  any  part  of  a  railroad,  shall  be  indebted  to  any  sub-con- 
tractor, laborer,  or  other  person  who  shall  perform  any  labor  upon 
or  furnish  any  materials  for  such  railroad,  such  sub-contractor  or 
laborer,  or  other  person,  may  give  notice  of  such  indebtedness  to 
the  company  ;  and  said  company  shall  thereupon  become  liable  to 
pay  such  sub-contractor  or  laborer,  or  other  person,  the  amount 
so  due  him  for  such  labor  or  materials,  and  action  may  be  main- 
tained against  said  company  therefor.  Such  notice  shall  be  given 
within  twenty  days  after  the  performance  of  the  labor  or  work, 
or  the  delivery  of  the  materials,  for  which  the  claim  is  made. 
Such  notice  shall  be  in  writing,  and  shall  state  the  amount  and 
number  of  days'  labor,  and  the  amount,  description,  and  quan- 
tity of  materials  furnished,  and  the  time  when  the  said  labor 
was  performed,  and  the  time  when  the  said  materials  were  fur- 
nished for  which  the  claim  is  made,  and  the  name  of  the  con- 
tractor from  whom  due,  and  shall  be  signed  by  such  sub-contractor, 
laborer,  or  other  person,  or  his  attorney,  and  shall  be  served  on  an 
engineer,  agent,  or  other  person  employed  by  said  company,  hav- 
ing charge  of  the  section  of  the  road  on  which  such  labor  was 
performed,  or  such  material  furnished,  personally,  or  by  leaving 
the  same  in  the  office  or  usual  place  of  business  of  such  engineer, 

1  Myer's  Supplement  1877,  p.  72,  §  10;  Laws  1873,  p.  61. 
584 


STATUTES   GIVING  LIENS   UPON   RAILROADS.  [§  600. 

agent,  or  person  having  charge,  with  some  person  over  fifteen 
years  of  age  ;  but  no  action  shall  be  maintained  against  any  com- 
pany under  these  provisions,  unless  the  same  is  commenced  within 
ninety  days  after  notice  is  given  to  the  company  as  above  pro- 
vided. 

A  former  statute1  giving  laborers  a  claim  for  thirty  days?  labor 
or  less  against  a  railroad  company,  upon  giving  notice  to  the  com- 
pany of  their  claim,  applied  to  laborers  employed  by  a  sub-contrac- 
tor.2 Under  such  statute  a  notice  that  a  contractor  is  in  arrear, 
and  that  the  laborer  claims  a  certain  sum  as  due  to  him,  is  suffi- 
cient. But  the  notice  can  be  served  only  in  the  mode  pointed  out 
by  statute,  by  service  upon  an  engineer  or  agent  of  the  company 
for  the  section  of  the  road  upon  which  the  work  was  done.  Evi- 
dence that  the  notice  was  given  to  the  company  without  showing 
how  it  was  given  is  insufficient.3 

600.  Nevada.4  —  Every  person  performing  labor  upon  or  fur- 
nishing material  of  the  value  of  twenty-five  dollars,  to  be  used  in 
the  construction,  alteration,  or  repairs  of  any  building,  railroad, 
tram-way,  toll-road,  canal,  or  any  other  structure,  has  a  lien  upon 
the  same  for  the  work  or  labor  done,  or  materials  furnished  by 
each  respectively,  whether  done  or  furnished  at  the  instance  of 
the  owners  of  the  building  or  other  improvement  or  his  agent ; 
and  every  contractor,  sub-contractor,  architect,  builder,  or  other 
persons  having  charge  of  the  construction,  alteration,  or  repairs, 
either  in  whole  or  in  part,  of  any  building  or  other  improvement 
as  aforesaid,  shall  be  held  to  be  the  agent  of  the  owner.  The 
liens  so  provided  for  are  preferred  to  any  lien,  mortgage,  or  other 
incumbrance  which  may  have  attached  subsequent  to  the  time 
when  the  building,  improvement,  or  structure  was  commenced, 
work  done,  or  materials  were  commenced  to  be  furnished  ;  also, 
to  any  lien,  mortgage,  or  other  incumbrance,  of  which  the  lien- 
holder  had  no  notice,  and  which  was  unrecorded  at  the  lime  of  the 

1  Wagner's  Stats,  of  Mo.  p.  302,  §  10.       have  no  eyes  t<>  Bee,  cars  to  hear,  nor  bands 
-  Grannahan  v.  Hannibal  &  St.  Jo.  It.     to  receive,  and  can  only  directly  act,  or 

B,  Co.  30  Mo.  546;   and    Bee    1'rlcrs   v.  St.      be    acted    upon,  through  and    DJ   means   of 

Iron  Mt.  R.  B.  Co.  24   Mo.  586  j  their  agenti   and    officers."      Per  Sher- 

S.  C.  23  Mo.  107.  wood,  J. 

Cosgrove  v.  Tebo  &  Neosho  B.  R.  Co.  4  Stat.  1875,  ch.  64,  §§  1,  4. 
54  Mo.  495.    "For  these  artificial  entities 

585 


§§  601,  602.]    LIENS   AFFECTING    PRIORITY    OF    RAILROAD   MORTGAGES. 

building,  improvement,  or  structure  was  commenced,  work  done, 
or  the  materials  were  commenced  to  be  furnished. 

601.  New  Hampshire.1  —  Any  person  who  shall,  by  himself 
or  others,  perform  labor  or  furnish  materials  to  the  amount  of 
fifteen  dollars  or  more,  in  the  grading,  masonry,  bridging,  or 
track-laying  of  any  railroad,  under  a  contract  with  an  agent,  con- 
tractor, or  sub-contractor  of  the  proprietors  thereof,  by  giving  no- 
tice in  writing  to  said  proprietors,  or  the  person  having  charge 
of  said  railroad,  that  he  shall  claim  a  lien  for  labor  to  be  per- 
formed or  materials  to  be  furnished,  shall  have  a  lien  upon  said 
railroad,  and  the  land  upon  which  the  same  is  constructed,  which 
shall  continue  for  sixty  days  after  such  labor  is  performed  or  ma- 
terials furnished,  and  may  be  enforced  by  attachment,  as  provided 
by  law  in  the  case  of  a  lien  upon  a  house  or  other  building  or  ap^- 
purtenances. 

602.  New  Jersey.2 — As  often  as  any  contractor  for  the  con- 
struction of  any  part  of  a  railroad  which  is  in  progress  of  construc- 
tion shall  be  indebted  to  any  laborer  for  thirty  or  any  less  num- 
ber of  days'  labor  performed  in  constructing  said  road,  such  laborer 
may  give  notice  of  such  indebtedness  to  said  company,  and  the 
company  shall  thereupon  become  liable  to  pay  such  laborer  the 
amount  so  due  him  for  such  labor,  and  an  action  may  be  main- 
tained against  said  company  therefor ;  such  notice  shall  be  given 
by  such  laborer  to  said  company  within  twenty  days  after  the 
performance  of  the  number  of  days'  labor  for  which  the  claim  is 
made  ;  it  must  be  in  writing,  and  must  state  the  amount  and 
number  of  days'  labor,  and  the  time  when  the  same  was  per- 
formed for  which  the  claim  is  made,  and  the  name  of  the  con- 
tractor from  whom  due,  and  must  be  signed  by  such  laborer  or 
his  attorney,  and  served  on  an  engineer,  agent,  or  superintendent 
employed  by  such  company  having  charge  of  the  section  of  the 
road  on  which  such  labor  was  performed,  personally,  or  by  leaving 
the  same  at  the  office  or  usual  place  of  business  of  such  engineer, 
agent,  or  superintendent,  with  some  person  of  suitable  age  ;  but 
no  action  shall  be  maintained  against  any  compan}'  under  these 
provisions  unless  the  same  is  commenced  within  thirty  days  after 

1  Laws  1871,  ch.  1,  §  3.  2  R.  S.  1877,  p.  927,  §  10 ;  Acts  1877,  p. 

155,  §  10. 
586 


STATUTES    GIVING   LIENS   UPON   RAILROADS.  [§  603. 

notice  is  given  to  the  company  by  such  laborer.  The  liability  of 
the  companj7  cannot  exceed  its  liability  to  the  contractor.  Pay- 
ments made  to  such  laborers  are  a  full  discharge  to  the  company 
from  the  contractor  for  the  amount  so  paid. 

Whenever  a  receiver  is  appointed  over  any  railroad  company,1 
the  receiver  is  required  to  apply  all  unincumbered  personal  ef- 
fects, and  all  moneys  which  may  be  transferred  to  him  at  the 
time  of  entering  upon  his  duties  as  such  receiver,  toward  the  pay- 
ment of  wages  at  that  time  due  the  employees  of  such  company  ; 
and  the  chancellor  may  from  time  to  time  make  such  orders  as 
he  may  deem  proper  to  equitably  carry  out  the  provisions  of  this 
section  ;  provided,  that  no  such  payments  shall  be  made  for  more 
than  two  months'  wages. 

In  case  of  the  insolvency  of  any  corporation,2  the  laborers  in 
the  employ  thereof  shall  have  a  lien  upon  the  assets  thereof  for 
the  amount  of  wages  due  to  them  respectively,  which  shall  be 
paid  prior  to  any  other  debt  or  debts  of  the  company  ;  and  the 
word  "  laborers  "  shall  be  construed  to  include  all  persons  doing 
labor  or  service  of  whatever  character  for  or  as  workmen  or  em- 
ployees in  the  regular  employ  of  such  corporations. 

603.  New  York.3  —  The  pi-ovisions  of  the  laws  relating  to 
mechanics'  liens  apply  to  bridges  and  trestle-work  erected  for  rail- 
roads and  materials  furnished  therefor,  and  labor  performed  in 
constructing  said  bridges,  trestle-work,  and  other  structures  con- 
nected therewith  ;  and  the  time  within  which  said  liens  may  be 
filed  extends  to  ninety  days  from  the  time  when  the  last  work 
shall  have  been  performed  on  said  bridges,  trestle-work,  and  struct- 
ures connected  therewith,  or  the  time  from  which  said  materials 
shall  have  been  delivered. 

Any  person  who  performs  any  labor  for  a  railroad  corporation, 
on  filing  with  the  county  clerk  of  any  county  in  which  Buch  rail- 
road corporation  is  situated,  or  through  which  the  road  of  such 
corporation  passes,  the  notice  hereafter  mentioned,  lias  a  lien  for 
the  value  of  such  labor  upon  such  railroad  track,  rolling  stock,  and 

1  Laws  1874,  ch.  27,  §  2;  2  Rev.  1877,  and  sec  2  It.  S.  ls::>,  \>.  565.  Original 
p.  943.  Ads,  Laws    [854,  <h.   403;    Laws    1870, 

2  1  Rev.  1877,  p.  188,  §  63  ;  2  Ik  128'J,  eh.  529  ;  the  latter  art  extending  tin-  lien 
§25.  provided  for  in   former   act  to  railroad 

3  3  Rev.  Stat.  1875,  p.  815,  §§  1,  3,  1,  7  ;      I.. 


§  603.]       LIENS   AFFECTING   PRIORITY    OF   RAILROAD   MORTGAGES. 

appurtenances,  and  upon  the  land  upon  which  such  railroad  track 
and  appurtenances  are  situated,  to  the  extent  of  the  right,  title, 
and  interest  of  such  railroad  corporation  in  the  property  existing 
at  the  time  of  filing  the  said  notice.  Within  thirty  days  after 
the  performance  and  completion  of  such  labor,  such  person  shall 
file  a  notice,  in  writing,  with  the  county  clerk  of  the  county  where 
the  property  is  located,  specifying  the  amount  of  claim,  and  the 
corporation  against  whom  the  claim  is  made. 

Every  lien  created  under  the  provisions  of  this  act  continues 
until  the  expiration  of  one  year,  unless  sooner  discharged  by  the 
court  or  some  legal  act  of  the  claimant  in  the  proceedings  ;  but 
when  a  judgment  is  entered  therein,  and  docketed  with  the 
county  clerk  within  said  year,  it  shall  be  a  lien  upon  the  real 
property  of  the  railroad  corporation  against  whom  it  is  obtained, 
to  the  extent  that  other  judgments  are  now  made  a  lien  thereon. 

Under  these  acts  laborers  employed  by  a  sub-contractor  cannot 
establish  a  lien  against  the  company  unless  they  show  that  at  the 
time  of  filing  their  notices  the  company  was  indebted  to  the  prin- 
cipal contractor  on  its  contract  with  him,  and  unless,  moreover, 
they  show  that  the  principal  contractor  was  then  indebted  to  the 
sub-contractor.1 

It  is  further  provided,  that  as  often  as  any  contractor  for  the 
construction  of  any  part  of  a  railroad,2  which  is  in  progress  of  con- 
struction, shall  be  indebted  to  any  laborer  for  thirty  or  any  less 
number  of  days'  labor  performed  in  constructing  said  road,  such 
laborer  may  give  notice  of  such  indebtedness  to  said  company  ; 
and  said  company  shall  thereupon  become  liable  to  pay  such  la- 
borer the  amount  so  due  him  for  such  labor,  and  an  action  may 
be  maintained  against  said  company  therefor.  Such  notice  shall 
be  given  by  said  laborer  to  said  company  within  twenty  days 
after  the  performance  of  the  number  of  days'  labor  for  which  the 
claim  is  made.  Such  notice  shall  be  in  writing,  and  shall  state 
the  month  and  particular  days  of  the  month  upon  which  labor 
was  performed  and  remains  unpaid  for,  the  price  per  day,  the 
amount  due,  with  the  name  of  the  contractor  from  whom  due,  the 
section  of  the  road  on  which  such  labor  was  performed,  and  shall 

1  Sampson  v.  Buffalo,  N.  Y.  &  Philad.  contractors.    Kent  v.  New  York  Cent.  R. 

R.  R.  Co.  13  Hun  (N.  Y.),  280;  6  N.  Y.  R.  Co.  12  N.  Y.  628. 

Weekly  Dig.  74.     Statute  1850,  ch.  140,  "-  2  R.  S.  1875,  p.  522. 
§  12,  applied  to  laborers  employed  by  sub- 

588 


STATUTES   GIVING    LIENS   UPON    RAILROADS.  [§§  604,  605. 

be  signed  by  such  laborer  or  bis  attorney,  to  which  notice  an  affi- 
davit shall  be  annexed,  made  by  sucb  laborer  or  bis  attorney,  to 
tbe  effect  that  of  bis  own  knowledge  tbe  statements  contained  in 
sucb  notice  are  in  all  respects  true.  Sucb  notice  so  verified  sball 
be  served  on  an  engineer,  agent,  or  superintendent  employed  by 
said  company  having  charge  of  tbe  section  of  tbe  road  on  which 
such  labor  was  performed,  personally,  or  by  leaving  tbe  same  at 
tbe  office  or  usual  place  of  business  of  sucb  engineer,  agent,  or 
superintendent,  with  some  person  of  suitable  age.  But  no  action 
sball  be  maintained  against  any  company,  under  tbe  provisions  of 
tbis  section,  unless  tbe  same  is  commenced  after  ten  and  within 
thirty  days  after  notice  is  given  to  tbe  company  by  such  laborer 
as  above  provided. 

604.  North  Carolina.1  —  As  often  as  any  contractor  for  the 
construction  of  any  part  of  a  railroad  which  is  in  progress  of  con- 
struction sball  be  indebted  to  any  laborer  for  thirty  or  any  less 
number  of  days'  labor  performed  in  constructing  said  road,  such 
laborer  may  give  notice  of  such  indebtedness  to  said  company, 
and  said  company  sball  thereupon  become  liable  to  pay  sucb  la- 
borer the  amount  so  due  him  for  such  labor,  and  an  action  may 
be  maintained  against  said  company  therefor.  Sucb  notice  shall 
be  given  by  said  laborer  to  said  company  within  twenty  .lays 
after  the  performance  of  the  number  of  days'  labor  for  which 
the  claim  is  made.  Such  notice  shall  be  in  writing,  and  shall 
state  the  amount  and  number  of  days'  labor,  and  the  time  when 
the  same  was  performed  for  which  the  claim  is  made,  and  the 
name  of  the  contractor  from  whom  due,  and  shall  be  signed  by 
such  laborer  or  his  attorney,  and  shall  be  served  on  an  engineer, 
agent,  or  superintendent,  employed  by  said  company,  having 
charge  of  the  section  of  the  road  on  which  such  Labor  was  per- 
formed, personally,  or  by  leaving  tbe  same  at  the  office  or  usual 
place  of  business  of  such  engineer,  agent,  or  superintendent,  with 
some  person  of  suitable  age.  But  no  action  shall  be  maintained 
against  any  company  under  the  provisions  of  this  Bection  unless 
the  same  is  commenced  within  thirty  days  after  notice  is  given 
to  the  company  by  such  laborer  as  above  provided. 

605.    Ohio.  —  Any    person    who    performs    labor    or    furnishes 
1  Itcvisal  1873,  cli.  99,  §12;  Acl  1871-2,  ch.  L88,  §  12. 


§  606.]  LIENS  AFFECTING  PRIORITY  OF  RAILROAD  MORTGAGES. 

machinery  or  materials  for  erecting,  altering,  repairing,  or  remov- 
ing any  house,  mill,  manufactory,  or  other  building,  appurtenance, 
fixture,  bridge,  or  other  structure,  by  virtue  of  a  contract  with 
the  owner  or  his  agent,  has  a  lien  upon  the  same  and  the  owner's 
interest  in  the  land  to  secure  the  payment  of  the  claim.  To 
obtain  such  lien  the  claimant  must,  within  four  months  from  the 
time  of  performing  such  labor  or  furnishing  such  machinery  or 
materials,  file  an  itemized  account  with  the  county  recorder.1 

Railroad  companies  contracting  for  the  construction  of  a  rail- 
road,2 depot  buildings,  water  tanks,  or  any  part  thereof,  are  liable 
to  each  person  performing  labor  or  furnishing  materials  stipulated 
for  in  the  contract,  expressly  or  impliedly  made  with  the  original 
contractor,  or  with  any  sub-contractor,  provided  the  claimant  shall 
serve  a  notice  of  his  claim  upon  the  company  within  thirty  days 
after  he  has  ceased  to  labor  or  furnish  materials  for  such  road  ; 
but  no  lien  upon  the  property  is  given  by  this  statute  for  the  pay- 
ment of  such  claim. 

606.  Pennsylvania.3  —  The  legislature  of  this  state  by  resolu- 
tion declared  that  it  shall  not  be  lawful  for  any  company  of  the 
state  empowered  to  construct  and  maintain  any  railroad,  canal,  or 
other  public  improvement,  while  any  debts  and  liabilities  incurred 
by  the  company  to  contractors,  laborers,  and  workmen  employed 
in  the  construction  or  repair  of  such  improvement  remain  unpaid, 
to  execute  any  assignment,  mortgage,  or  other  transfer  of  the  real 
or  personal  estate  of  the  said  company,  so  as  to  defeat,  postpone, 
endanger,  or  delay  such  creditors  without  their  written  assent 
shall  first  be  had ;  and  any  such  assignment,  mortgage,  or  transfer 
shall  be  deemed  fraudulent,  null,  and  void,  as  against  any  such 
contractors,  laborers,  and  workmen. 

The  intention  of  the  legislature  by  this  resolution  was  to  give 
to  an  unpaid  contractor  a  priority  of  claim  to  the  company's  prop- 
erty over  every  right  that  could  be  acquired  under  a  mortgage 
made  after  the  debt  to  the  contractor  was  incurred  ;  and  that  the 
property,  into  whosesoever  hands  it  might  come,  should  remain 

1  Laws  1877,  pp.  168-174.  the  issuing  of  a  scire  facias  upon  a  judg- 

2  Laws  1874,  p.  51.  ment  for  the  services.     The  plaintiff  may 

3  January  21,1843.     A  further  act  re-  proceed   in    equity    notwithstanding   this 
lating  to  the  enforcement  of  the  lien  pro-  statute.     Malone  v.   Shamokin  Valley  & 
vided  for   in  this   resolution   was   passed  Pottsville  R.  R.  Co.  34  Leg.  Int.  438. 
April  4,  1862.     The  latter  act  provides  for 

590 


STATUTES   GIVING   LIENS   UPON   RAILROADS.  [§  606. 

subject  to  a  paramount  claim  of  the  contractor  so  long  as  the  debt 
due  to  him  remained  unpaid.  The  resolution  substantially  gave 
the  contractor  a  lien  of  indefinite  duration.  Though  it  did  not 
give  a,  jus  in  re  or  a  jus  ad  rem,  it  constituted  a  charge  upon  the 
property,  a  right  to  prevent  any  disposition  of  it,  by  which  it 
could  be  withdrawn  from  the  creditor's  reach,  and  therefore  in  a 
legitimate  sense  an  equitable  lien.  Such  lien  is  not  merged  in 
any  judgment  that  may  be  obtained  for  the  debt.  Neither  is  the 
lien  divested  by  a  foreclosure  sale  of  the  property  under  a  mort- 
gage so  made,  especially  if  the  sale  be  made  subject  to  any  lawful 
claims  which  may  exist  prior  to  the  mortgage.  Nor  is  such  lien 
divested  by  a  statute  authorizing  the  company  to  borrow  money 
and  to  pledge  its  income  and  property  to  secure  the  payment.  A 
repeal  of  the  resolution  cannot  be  inferred  from  the  grant  of  such 
a  power.1 

Under  these  laws  a  sale  under  a  mortgage  executed  subse- 
quently to  the  making  of  a  contract  for  the  building  of  a  railroad 
is  fraudulent  and  void  as  against  the  contractor:  and  if  the  prop- 
erty has  been  conveyed  in  pursuance  of  such  sale  to  a  new  com- 
pany it  is  still  liable  to  the  claim  of  the  contractor.2 

This  statute  3  is  held  not  to  include  civil  engineers,  although 
the  latter  were  required  to  render  service  to  the  company  from 
the  commencement  to  the  completion  of  the  work.4  Earlier  de- 
cisions had  construed  statutes  relating  to  laborers'  and  servants' 
wages  as  intended  to  secure  to  manual  laborers  the  fruits  of  their 
own  work,  and  not  as  intended  to  embrace  the  earnings  of  con- 
tractors. The  intent  of  all  such  statutes  is  to  protect  a  class  of 
persons  who  are  wholly  dependent  upon  the  toil  of  their  hands 
for  subsistence,  and  who  cannot  protect  themselves.  In  one  sense 
the  engineer  is  a  laborer,  but  so  is  the  lawyer  and  doctor,  the 
banker,  and  the  corporation  officer,  yet  they  cannot  properly  be 
included  among  the  laboring  classes. 

i  Fox   v.  Seal,  22  Wall.  4l'4  ;  followed  8  Laws  1843,  p.  367  ;  Laws  1862,  \<.  335. 

by  Tyrone  &  Clearfield  R.R.  Co.  v.  Jones,  '  Pennsylvania   R.  R.  Co.  v.  Leuffer,  84 

I  Weekly  Notes  of  Cases,  571.  Pa. St.  168  ;  S.  (7.24  Pittsburg L.  J.  177  ;  5 

-  Malone  v.  Shamokin  Valley  &  Potts-  Cent.  L.  J.  74  ;  4  Weeklj  Notes,  :: ;  and 

ville  K.  R.  Co.  34  Leg.  Int.  438.    In  this  Bee  Wentworth's  Appeal,  24   Pittsburg  L. 

case  the   action  was    brought  by  the  con-  J.  'J5. 
tractor  more  than  six  years  after  the  mak- 
ing of  the  contract. 

..'.'1 


§§  607,  608.]       LIENS  AFFECTING  PRIORITY  OF  RAILROAD  MORTGAGES. 

607.  In  Rhode  Island,1  any  building,  canal,  turnpike,  rail- 
road, or  other  improvement  constructed,  erected,  or  repaired  by 
contract,  with  or  at  the  request  of  the  owner,  is  subject  to  a  lien 
for  the  work  done  and  the  materials  used  before  any  other  lien 
which  shall  originate  subsequent  to  the  commencement  of  such 
erection,  construction,  or  reparation.  If  the  contract  be  written, 
legal  process  to  enforce  the  lien  must  be  commenced  within  four 
months  from  the  time  that  any  payment  on  such  contract  shall 
become  due  ;  if  not  in  writing,  within  six  months  from  the  time 
of  commencing  the  doing  such  work,  or  the  delivery  of  such  ma- 
terials. A  sub-contractor  can  have  no  lien  unless  within  thirty 
days  after  commencing  the  work  he  gives  notice  in  writing  to  the 
person  against  whose  estate  he  claims  a  lien  that  he  shall  claim 
the  benefit  of  the  lien.  Lodging  an  account  or  demand  in  the 
office  of  the  clerk  of  the  town,  or  in  Providence  in  the  office 
of  the  recorder  of  deeds,  is  deemed  the  commencement  of  legal 
process. 

608.  In  Vermont  2  it  is  provided  that  every  railroad  shall  re- 
quire sufficient  security  from  the  contractors  for  the  payment  of 
all  labor  performed  in  constructing  its  road  by  persons  in  their 
employ  ;  and  that  such  company  shall  be  liable  to  the  day  la- 
borers employed  by  the  contractors  for  labor  actually  performed 
on  their  road,  but  such  liability  shall  not  exist  unless  the  person 
having  such  claim  shall,  in  writing,  within  forty  days  after  per- 
formance of  such  labor,  notify  the  engineer  in  charge  of  the  sec- 
tion on  which  the  labor  was  performed  that  he  has  not  been  paid 
by  the  contractors. 

This  provision  has  been  declared  constitutional  as  applied  to 
corporations  previously  chartered.3  Under  this  statute  the  lia- 
bility of  the  corporation  is  not  limited  to  laborers  employed  by 
persons  contracting  directly  with  the  corporation,  but  extends  to 
persons  employed  by  sub-contractors.4  The  statute  secures  to  the 
laborer  not  only  his  personal  services,  but  payment  for  the  use  of 

1  G.  S.  1872,  ch.  166,  §§  1-7  ;  Laws  1874,  upon  Kent  v.  N.  Y.  Central  R.  R.  Co.  2 
ch.  419.  Kern.  (N.  Y.)  628;  Peters  v.  St.  Louis  & 

2  G.    S.   1870,    ch.   28,   §  72;    Act   of  Iron  Mountain  R.  R.  Co.  23  Mo.  107. 
1849,  No.  41,  §  53.  *  Branin  v.  Conn.  &  Passumpsic  Rivers 

8  Branin  v.  Conn.  &  Passumpsic  Rivers     R.  R.  Co.  supra  ;  Kent  v.  N.  Y.  Central  R. 
R.  R.  Co.  31  Vt.  214;  citing  and  relying     R.  Co.  supra. 
592 


STATUTES   GIVING   LIENS  UPON  RAILROADS.       [§§  609,  610. 

his  horse  and  cart  which  he  has  used  in  the  construction  of  the 
road.1 

609.  Virginia.2  —  All  conductors,  brakesmen,  engine-drivers, 
firemen,  captains,  stewards,  pilots,  clerks,  depot  or  office  agents, 
storekeepers,  mechanics,  or  laborers,  and  all  persons  furnishing 
railroad  iron,  fuel,  and  all  other  supplies  necessary  for  the  opera- 
tion of  trains  and  engines,  employed  in  the  service  of  any  railroad, 
canal,  or  other  transportation  company,  chartered  under  or  by  the 
laws  of  this  state,  or  doing  business  within  its  limits,  have  a  prior 
lien  on  the  franchise,  the  gross  earnings,  and  on  all  the  real  and 
personal  property  of  said  company,  which  is  used  in  operating  the 
same,  for  and  to  the  extent  of  the  wages  or  salaries  contracted  to 
be  paid  them  by  said  company ;  and  no  mortgage,  deed  of  trust, 
sale,  conveyance,  or  hypothecation  hereafter  executed  of  said  prop- 
erty shall  defeat  or  take  precedence  over  said  lien. 

Any  person  entitled  to  the  benefit  of  the  lien  forfeits  the  same 
unless  within  six  months  after  his  wages  or  salary  shall  have 
fallen  due  he  files  a  memorandum,  stating  the  amount  and  justice 
of  his  claim,  under  affidavit,  according  to  his  best  knowledge  and 
belief,  with  the  clerk  of  the  county  or  corporation  court  ;  and  the 
said  clerk  shall  forthwith  record  the  said  memorandum  in  the 
deed  book,  and  index  the  same  by  the  name  of  the  person  filing 
the  same,  and  also  in  the  name  of  the  corporation  against  which 
the  claim  is.  And  it  is  provided  also,  that  it  shall  in  all  cases 
be  sufficient  for  the  claimant  to  file  the  memorandum  with  the 
clerk  of  the  court  wherein  deeds  may  be  recorded  in  the  county 
or  corporation  wherein  the  chief  office  of  the  company  against 
which  the  claim  may  be  is  located. 

610.  Wisconsin.3  —  Whenever  any  railway  company  in  this 
state  is  placed  by  any  court  of  this  state  in  the  hands  of  a  re- 
ceiver, whether  upon  foreclosure  or  creditors'  bill,  it  is  the  duty 
of  such  receiver  to  report  immediately  to  the  court  ao  appointing 
him  the  amount  due  by  said  railroad  company,  or  by  the  per  n 
or  persons  who  were  operating  said  road  at  the  date  o\  such  re- 
ceiver's appointment,  to  employees  and  Laborers  upon  said,  road, 
and  it  is  made  the  duty  of  said  court  to  order  the  said  receiver  bo 

i  Branin  v.  Conn.  &  Pusampsic  Biven        -  Acta  i1-".  ch.  200,  §§  1,  2. 
B.  B.  Co.  supra.  '  '<^s  1878,  ch.  316,  8  >• 

38  598 


§  611.]       LIENS   AFFECTING   PRIORITY    OF   RAILROAD   MORTGAGES. 

pay  out  of  the  first  receipts  and  earnings  of  said  railway,  after 
paying  current  operating  expenses  under  his  administration,  the 
wages  of  all  employees  and  laborers  which  had  accrued  within 
six  months  prior  to  the  appointment  of  such  receiver. 

IV.    Vendor'' s  Lien. 

611.  Vendors  of  land  to  a  railroad  company  have  a  lien 
for  the  purchase  money  under  the  same  circumstances  they 
would  have  such  lien  against  other  purchasers  ; 1  and  as  in  other 
cases  they  may  have  the  lien  enforced  by  a  sale  of  the  land.2 
Under  some  circumstances  a  vendor  may  have  an  injunction  re- 
straining the  company  from  continuing  in  the  possession  and  use 
of  the  land,  and  may  have  a  receiver  appointed  to  enforce  the 
lien.3  But  ordinarily  an  injunction  will  not  be  granted  to  re- 
strain the  company  from  using  the  land,  or  from  running  trains 
or  engines  over  it,  until  a  sale,  inasmuch  as  the  land  would  thus 
be  rendered  useless  to  both  parties.4  Even  after  an  unsuccessful 
attempt  by  the  vendor  to  enforce  his  lien  by  sale,  the  court  will 
not  restrain  the  company  from  continuing  in  possession  of  the 
land,  but  will  rather  direct  another  attempt  to  sell.5 

A  mortgage,  so  far  as  it  covers  after-acquired  property,  is  an 
equitable  lien  only,  and  the  record  of  it  prior  to  the  acquisition  of 
the  property  may  not  be  constructive  notice  of  the  existence  of 
the  mortgage,  or  of  the  purpose  for  which  it  was  made.  But  as 
against  an  agent  of  a  railroad  company,  who  has  been  employed 
in  securing  the  necessary  lands  for  its  right  of  way,  such  record  is 
presumptive  evidence  of  actual  knowledge  on  his  part  that  bond 
fide  bondholders  had  advanced,  or  would  advance,  their  money 
upon  the  faith  of  the  mortgage,  and  upon  the  faith  of  the  public 
records  as  to  the  title  and  incumbrance.  Therefore,  when  such 
an  agent  of  the  Canandaigua  and  Niagara  Falls  Railroad  Company 
himself  sold  and  conveyed  land  to  the  company,  he  was  deemed 

1  Winchester  v.  Mid-Hants  Ry.  Co.  L.  Walker  v.  Ware,  Hadham  &  Buntingford 
R.  5  Eq.  17  ;  Florida  v.  Anderson,  91  U.     Ry.  Co.  12  Jur.  N.  S.  pt.  1,  18. 

S.  667  ;  Anderson  v.  Jacksonville,  Fensa-  3  Winchester  v.   Mid-Hants    Ry.    Co. 

cola  &  Mobile  R.  R.  Co.  2  Woods,  628.  supra. 

2  Munns  v.  Isle  of  Wight  Ry.  Co.  L.  R.  *  Munns  v.  Isle  of  Wight  Ry.  Co.  su- 
5  Ch.  414  ;  L.  R.  8  Eq.  653  ;  St.  Germans  pra;  Lycett  v.  Stafford  &  Uttoxeter  Ry. 
v.  Crystal  Palace  Ry.  Co.  L.  R.  11   Eq.  Co.  L.  R.  13  Eq.  261  ;  41  L.  J.  474. 
568;  19  W.  R.  584  ;  Keane  v.  Athenry  &  b  Williams  v.  Aylesbury  &  Buckingham 
Ennis  Junction  Ry.  Co.  19  W.  R.  43,  318;  Ry.  Co.  21  W.  R.  819. 

594 


vendor's  lien.  [§  611. 

to  have  waived  any  claim  to  a  vendor's  lien  for  the  price,  as 
against  bondholders  secured  by  a  mortgage  of  the  road  and  the 
real  estate  then  owned  by  the  company,  or  which  might  afterwards 
be  acquired.1  It  was  regarded  as  inconsistent  with  good  faith  on 
his  part  that  he  should  retain  a  secret  lien. 

Moreover,  the  legal  title  of  the  land  in  question,  which  was  con- 
veyed to  the  railroad  company,  vested  immediately  in  the  latter. 
At  the  same  instant  the  lien  of  the  mortgage,  which  had  before 
that  been  given  by  the  railroad  company,  and  which,  before  that 
time,  remained  but  an  equitable  claim  upon  rights  to  be  acquired, 
became  a  vested  legal  right  upon  the  premises  in  question.  "  As- 
suming now,"  said  Potter,  J.,  delivering  the  judgment  of  the 
Court  of  Appeals  of  New  York,2  "  for  the  purpose  of  the  argu- 
ment, the  position  urged  by  the  plaintiff  that  he  did  not  intend  to 
waive  his  equitable  lien  for  the  purchase  money,  all  that  he  can 
then  claim  is,  that  his  equitable  lien  attached  at  the  same  instant 
of  time  with  the  mortgage  lien.  Here,  then,  are  two  liens  accru- 
ing at  the  same  instant,  the  one  a  secret  equitable  one,  the  other 
a  legal,  written,  recorded,  public  one.  The  question  would  then 
seem  to  be,  which  of  these  liens  has  the  priority  ?  "  This  ques- 
tion is  answered  by  the  decision,  that  the  lien  of  the  recorded  mort- 
gage became  a  legal  mortgage  as  soon  as  the  land  was  acquired, 
and  that  this  lien  was  superior  to  the  equity  of  the  vendor. 

As  against  a  mortgage  which  in  terms  covers  all  the  property 
a  railway  company  may  afterwards  acquire  for  the  use  of  its  road, 
a  person  who  afterwards  sells  to  it  land  for  its  road-bed  cannot  set 
up  a  vendor's  lien  for  purchase  money.  The  mortgage  becomes  a 
lien  upon  such  land  from  the  moment  the  company  acquires  the 
title.3  After  such  a  mortgage  has  been  foreclosed,  and  tin-  road 
has  passed  into  the  hands  of  innocent  purchasers,  there  is  an  ad- 
ditional reason  why  such  a  lien  cannot  be  enforced.4 

A  sale  under  a  vendor's  lien  necessarily  cuts  oil'  all  incum- 
brances made  by  the  company,  and  gives  the  purchaser  a  title 
freed  from  all  claims  on  the  part  of  the  company  itself,  an. I  from 
all  claims  en  the  part  of  the  public/' 

ii-k  v.  Totter,  2  Abb.   (N.  V.)  App.        *  Pi<  rce  v.  Milwaukee  ft  St.  Pan!  B.  B. 
Dec.  138;   and   see  Carpenter   v.  Black     Co.  supra. 
Bawk  Gold  Mining  Co.  65  N.  V.  48.  6  Munnsw.  We  of  Wighl  Ry.Co.supra; 

2  Fihk  v.  Potter,  supra.  Walker  v.  Ware,  Hadham  &  Buntingford 

a  Pierce  v.  .Milwaukee  &  St.  Paul  K.  K.     By.  Co.  8fi  Beav.5S  ;  H  W.  B.  L58. 


Co.  24    Wis.  551. 


595 


§§  612,  613.]       LIENS  AFFECTING  PRIORITY  OF  RAILROAD  MORTGAGES. 

V.   Transportation  Subscriptions. 

612.  In  Missouri 1  provision  is  made  that  a  railroad  company 
may  receive  subscriptions  to  the  capital  stock  of  the  company  to 
aid  in  the  construction  and  equipment  of  its  road,  to  be  known  as 
"  transportation  subscriptions,"  which  are  payable  in  services  to 
be  rendered  by  the  company  in  the  transportation  of  passengers 
and  freight.  These  subscriptions  are  made  an  irrevocable  and 
indefeasible  first  lien  and  charge  against  such  railroad,  and  the 
road-bed,  rolling  stock,  and  depots,  engine-houses,  and  machine 
shops  of  such  company,  then  in  possession  of  or  thereafter  ac- 
quired by  such  company,  or  its  successors  or  assigns,  until  dis- 
charged, except  as  to  mortgages  recorded  in  the  county  or  coun- 
ties through  which  the  line  of  such  road  runs,  or  is  proposed  to  be 
run,  before  the  date  of  the  making  of  such  subscription  ;  which 
mortgages  have  preference  only  as  to  so  much  of  such  road  and 
the  property  of  such  company  as  is  situated  in  counties  in  which 
the  same  are  at  that  time  recorded,  and  such  mortgages  have  no 
preference  upon  any  property  acquired  after  the  time  of  making 
such  subscription. 

VI.  Judgment  Lien. 

613.  A  mortgage  of  corporate  property  or  of  the  corporate 
undertaking  has  priority  over  a  subsequent  judgment  creditor 
of  the  company,  and  it  does  not  vary  the  rule  that  the  judgment 
is  obtained  before  the  mortgagee  has  entered  into  possession  him- 
self, or  through  a  receiver.2  If  such  judgment  creditor  has  ob- 
tained the  appointment  of  a  receiver,  the  mortgagee  may  have  a 
receiver  appointed  who  will  supersede  the  receiver  already  in  pos- 
session.3 The  judgment  creditor  may  also  be  restrained  at  the 
suit  of  a  prior  mortgagee  from  levying  upon  any  of  the  property 
included  in  terms,  or  by  inference  in  the  mortgage.4 

A  mortgage,  of  which  a  judgment  creditor  has  actual  notice  at 
the  time  of  his  recovery  of  judgment,  though  not  recorded  till 
afterwards,  has  priority  of  the  judgment  lien.     If  such  judgment 

1  Laws  1877,  March  29;  Myer's  Sup-         i  Legg   v.  Mathieson,  supra;  Gardner 
plementto  Stats,  p.  81.  v.  London,  Chatham  &  Dover  By.  Co.  L. 

*  Legg  v.  Mathieson,  2  Giff.  71.  R.  2  Ch.  App.  201. 

3  Ames  v.  Birkenhead  Docks,  20  Beav. 
332,  352. 

596 


JUDGMENT   LIEN.  [§  613. 

be  afterwards  assigned,  the  assignee  takes  it  subject  to  all  the 
equities  affecting  the  original  plaintiff  in  the  judgment.1 

Under  a  mortgage  comprising  the  real  and  personal  property  of 
a  railway  company,  a  subsequent  judgment  creditor  of  the  com- 
pany may  be  enjoined  from  levying  his  execution  upon  any  part  of 
the  property,  although  the  mortgage  be  not  due.  Whenever  the 
mortgagee's  security  is  in  danger  of  being  impaired  by  the  acts  of 
a  junior  creditor,  he  may  file  his  bill  in  chancery  to  protect  his 
security,  and  restrain  the  threatened  injury.2 

1  Butler  v.  Rahm,  46  Md.  541.  409  ;  IS  L.  T.  (N.  S.)  73  ;  Legg  v.  Math- 

2  Wildy  v.  Mid-Hants  Rv.  Co.  16  W.  R.     ieson,  2  Giff.  71  ;  29  L.  J.  Ch.  385. 

597 


CHAPTER  XXL 

SCHEMES    FOR   REORGANIZATION   AFFECTING   THE    PRIORITY   OF 

MORTGAGES. 

I.  Rights  under  agreements  for  reorgan-  I  II.  Rights    of    preferred  stockholders  as 
iz;ition,  614-618.  against  mortgagees,  619-624. 

I.  Rights  under  Agreements  for  Reorganization. 

614.  Schemes  for  reorganizing  corporations.  —  In  general 
the  rights  of  secured  creditors  cannot  be  varied  without  their  con- 
sent. It  often  happens,  however,  that  such  creditors  are  in  effect 
compelled  to  admit  unsecured  creditors  and  the  stockholders  of 
an  insolvent  company  to  come  into  a  scheme  for  its  reorganization 
and  share  in  its  benefits  in  some  degree.  It  is  sometimes  so  far 
within  the  power  of  the  stockholders  and  unsecured  creditors  to 
embarrass  and  delay  proceedings  for  the  foreclosure  of  the  mort- 
gage and  sale  of  the  property,  that  it  is  expedient  for  the  mort- 
gage creditors  to  arrange  for  a  reorganization,  and  give  up  some- 
thing of  their  own  security,  for  the  sake  of  avoiding  litigation  and 
delay. 

The  entering  into  a  scheme  of  reorganization  is  a  voluntary 
matter  with  creditors  or  stockholders  of  a  corporation.  It  can- 
not be  forced  upon  any  one  except  by  virtue  of  a  statute  existing 
prior  to  the  charter  of  the  corporation,  so  that  such  statute  be- 
comes a  part  of  the  contract  under  which  its  securities  and  stock 
were  issued.  , 

By  force  of  statutory  provisions  for  reorganization  the  rights 
of  secured  creditors  may  be  varied  without  their  consent.  Thus 
the  Railway  Companies  Act  of  England1  provides,  "  where  a  com- 
pany are  unable  to  meet  their  engagements  with  their  creditors, 

1  30  &  31  Vict.  127,  §§   6-16,  Act  of  re,  L.   R.  6  Eq.  610;  lb.  615  ;  Cambrian 

1867.     Instances  of  such  schemes  may  be  Ry.  Co's.  Scheme  in  re,  L.  R.  3   Ch.  278; 

found  in  London  Financial  Asso.  v.  Wrex-  Munns  v.  Isle  of  Wight  Ry.  Co.  L.  R.  8 

ham,  &c.  Ry.  Co.  L.  R.  18  Eq.  566  ;  Bris-  Eq.  653 ;  Stevens  v.  Mid-Hants  Ry.  Co. 

tol  &  North  Somerset  Ry.  Co.  in  re,  L.  R.  L.  R.  8  Ch.  1064. 
6  Eq.  448  ;  Devon  &  Somerset  Ry.  Co.  in 

598 


RIGHTS   UNDER   AGREEMENTS   FOR   REORGANIZATION.      [§  615. 

the  directors  may  prepare  a  scheme  of  arrangement  between  the 
company  and  their  creditors,  with  or  without  provisions  for  set- 
tling and  defining  any  rights  of  shareholders  of  the  company  as 
among  themselves,  and  for  raising,  if  necessary,  additional  share 
and  loan  capital,  or  either  of  them,  and  may  file  the  same  in  the 
Court  of  Chancery  for  England  or  in  Ireland,  according  to  the 
situation  of  the  principal  office  of  the  company,  with  a  declara- 
tion in  writing  under  the  common  seal  of  the  company,  to  the 
effect  that  the  company  are  unable  to  meet  their  eno-ao-ements 
with  their  creditors."  The  scheme  must  be  assented  to  by  three 
fourths  of  the  mortgagees  and  holders  of  bonds,  debenture  stock, 
and  preference  stock  respectively  affected  by  it,  and  when  so 
assented  to  may  be  confirmed  by  the  Court  of  Chancery.  But  in 
such  case  it  is  to  be  observed  that  the  statute  becomes  a  part  of 
the  contract  under  which  subsequent  securities  are  taken.  The 
authority  of  parliament  in  respect  to  existing  corporations  is  how- 
ever different  from  that  possessed  by  legislatures  in  this  country. 

615.  A  substantial  departure  from  the  terms  of  a  compro- 
mise agreement,  the  object  of  which  was  to  substitute  third 
mortgage  bonds  for  prior  liens  and  debts  existing  against  a  cor- 
poration, will  absolve  the  parties  to  an  executory  agreement  from 
its  obligations,  and  leave  them  to  stand  on  their  original  rights 
under  the  prior  mortgage.  Thus  where  the  agreement  signed  by 
a  bondholder  recited  that  the  amount  of  debts  for  which  a  third 
mortgage  was  to  be  substituted  was  $955,000,  and  a  mortgage 
authorized  and  executed  to  carry  out  the  agreement  recited  that 
tin-  debt  secured  by  it  was  $1,200,000,  the  departure  from  flic 
agreement  was  considered  sufficient  to  justify  a  party  to  it  in  re- 
fusing to  comply  with  it.1  The  excess  is  so  great  as  to  require 
explanation.  A  small  increase  of  the  amount  arising  from  an 
accidental  omission  of  a  debt  which  the  agreement  was  intended 
to  provide  for  might  not  invalidate  the  agreement.  Bui  when 
the  excess  is  so  material,  and  the  only  explanation  of  it  is  that  the 
mortgage  was  increased  in  order  to  raise  funds  to  enable  the  com- 
pany to  so  construct  its  road  as  to  form  ;i  new  connection  with 
another  railroad,  —  an  object  foreign  to  the  purpose  of  the  com- 
promise agreement, —  the  change  oannol  be  justified.  The  fact 
that  the  whole  amount  of  $1,200,000  had  not  been  issue, I  under 
1  Miller  v.  Rutland  &  Washington  R.  B.  Co.  « < »  Vt.  399. 

599 


§§,616,  617.]       SCHEMES   AFFECTING   PRIORITY    OF   MORTGAGES. 

the  mortgage  is  immaterial  so  long  as  the  corporation  had  the 
right  to  issue  bonds  to  that  amount. 

616.  Failure  of  bondholder  to  surrender  bonds  in  accord- 
ance -with  agreement.  —  A  bondholder  who  has  entered  into  an 
agreement  for  the  reorganization  of  a  railroad  company  and  the 
purchase  of  the  property  at  a  foreclosure  sale  is  not  entitled  to  the 
benefits  of  his  agreement,  if  he  fails  to  perform  a  stipulation  on 
his  part  to  surrender  his  bonds  when  requested  prior  to  the  sale 
to  trustees  appointed  to  act  for  the  parties  to  the  agreement ;  es- 
pecially when  the  only  means  provided  for  the  purchase  of  the 
road  was  the  bonds  held  by  the  signers  of  the  contract.  Such 
bondholder  cannot  after  the  sale  come  in  and  participate  in  the 
benefits  of  a  reorganization,  but  can  claim  only  the  amount  of 
purchase  money  yielded  by  the  sale.1 

617.  A  party  to  an  agreement  for  the  reorganization  of  a 
company  cannot  set  up  a  secret  agreement  with  himself, 
to  the  disadvantage  of  the  other  parties  to  it.  The  Wilming- 
ton and  Manchester  Railroad  Company  having  issued  bonds  se- 
cured by  first,  second,  and  third  mortgages,  desiring  to  provide 
additional  means  for  rebuilding  and  equipping  its  road,  issued  a 
new  mortgage  for  a  sum  sufficient  to  retire  the  three  existing 
mortgages,  and  provide  for  the  sum  desired ;  and  most  of  the 
bondholders  under  the  old  mortgages  came  into  the  arrangement, 
and  exchanged  their  old  bonds  for  the  new.  The  new  mort- 
gage secured  bonds  of  three  classes  :  first,  preference  bonds  for 
which  the  first  mortgage  bonds  were  to  be  exchanged  ;  second, 
preference  bonds  to  be  used  in  rebuilding  and  equipping  the  road  ; 
and  third,  preference  bonds  to  be  used  in  retiring  the  second  and 
third  mortgage  bonds.  Default  having  been  made  under  the 
new  mortgage,  the  property  was  sold  under  a  decree  of  foreclos- 
ure, and  the  proceeds  were  directed  to  be  applied,  first,  to  the  pay- 
ment of  several  creditors  under  the  old  mortgages,  who  had  not 
exchanged  their  bonds  ;  and  the  balance  to  the  payment  of  the 
first  preference  bonds  pro  rata,  the  proceeds  being  insufficient  to 
satisfy  this  class  in  full.  A  holder  of  third  preference  bonds  then 
intervened  by  petition,  alleging  that  he  had  exchanged  bonds 
secured  by  the  second  and  third  mortgages  for  the  new  bonds, 

1  Carpenter  v.  Catlin,  44  Barb.  (N.  Y.)  75. 
600 


PREFERRED    STOCKHOLDERS   AS   AGAINST   MORTGAGEES.       [§§  618,  619. 

under  a  separate  agreement,  that  if  all  the  old  bondholders  did 
not  come  into  the  arrangement  his  old  bonds  should  be  returned 
to  him,  and  he  should  be  restored  to  all  his  rights  under  thorn  ; 
and  he,  therefore,  prayed  that  his  old  bonds  be  returned,  and  that 
he  be  paid  the  amount  out  of  the  proceeds  of  sale  as  a  creditor  who 
had  not  parted  with  his  prior  lien  under  the  old  mortgages.  But 
it  appearing  that  the  other  purchasers  of  the  new  bonds  had  no 
notice  of  this  private  agreement,  he  had  no  equity  as  against  them 
to  the  relief  asked  for.  Seeking  relief  in  equity,  he  can  obtain  it 
only  on  equitable  principles.  The  arrangement  between  the  com- 
pany and  the  several  creditors,  for  the  exchange  of  their  securi- 
ties, is  regarded  in  equity  as  a  single  contract,  for  the  reason  that 
both  the  relations  of  all  these  creditors  with  the  company,  and 
their  relations  with  each  other,  entered  into  its  consideration. 
The  equities  among  the  creditors  must  be  satisfied  ;  and  against 
these  he  cannot  set  up  a  secret  agreement  with  the  company,  giv- 
ing him  an  advantage  over  the  other  bondholders.1 

618.  Under  a  scheme  to  relieve  an  insolvent  railroad  com- 
pany by  allowing  all  its  creditors  to  share  on  equal  terms  in 
a  mortgage  of  all  its  property,  a  creditor  who  held  its  promissory 
note,  with  other  notes  of  the  corporation,  as  collateral  security 
for  this  note,  was  allowed  to  prove  only  the  amount  of  the  orig- 
inal note  against  the  corporation,  because  the  purpose  of  the  ar- 
rangement was  to  give  all  the  actual  creditors,  without  regard  to 
the  nature  of  their  claims  or  the  form  of  the  contract  under 
which  they  arose,  an  equal  participation  in  the  security  afforded 
by  the  mortgage.2  This  is  very  different  from  the  case  where 
the  collateral  security  was  a  part  of  a  limited  amount  secured 
by  mortgage,  and  the  company  being  in  liquidation,  the  creditor 
had  a  legal  right  to  avail  himself  of  the  benefit  of  his  collateral 
security  by  proving  the  whole  of  it  against  the  property. 

II.   Rights  of  Preferred  Stockholders  as  against   Mortgagees. 

619.  Questions  of  priority  have  sometimes  arisen  between 
preferred  stockholders  and  subsequent  mortgagees. —  What. 

1  Jesupu.  Wilmin-toii  &  Manchester  B.  doubted  whether  a  debtor*!  own  bond  or 

E.  Co.2  S.  <:.  4G9.  mortgage,  deposited  by  waj  of  a  collateral, 

a  Third  Nat.  Bank  >•.  Eastern  R.  R.Co.  could  be  held  i<>  !"■  n  pledge  which  could 

122  Mass.  240.     In  Morris  Canal  &  Bank-  be  -old  in  the  market  and  applied  us  inch. 

ing  Co.  v.  Fisher,  'J  N.  J.  Bq.  '''17,  it   WU  601 


§  620.]  SCHEMES   AFFECTING   PRIORITY    OF   MORTGAGES. 

mortgage  interest  may  be  paid  by  a  railroad  company,  before  the 
payment  of  interest  on  its  preferred  stock  must  depend  on  the 
construction  to  be  given  the  conditions  attached  to  such  stock. 
Whatever  rights  attached  to  it  when  it  was  issued  continue  to  ad- 
here to  it.  If,  at  the  time  of  its  issue,  only  interest  on  mortgages 
then  existing  was  to  be  paid  before  interest  on  preferred  stock, 
subsequent  mortgage  indebtedness  will  not  affect  that  stock,  nor 
the  legal  right  of  its  holders,  to  payment  of  interest  before  pay- 
ment of  interest  on  mortgages  given  for  such  subsequent  indebted- 
ness. But  preferred  stockholders  would  have  no  preference  over 
subsequent  mortgagees  in  case  the  stock  was  issued  on  such  terms 
that  it  should  be  held  that  interest  on  all  mortgages  of  the  cor- 
poration, whether  for  indebtedness  prior  or  subsequent  to  the  issue 
of  the  preferred  stock,  was  first  to  be  paid  from  the  earnings.1 

620.  Ordinarily  preferred  shareholders  are  entitled  to  have 
deficiencies  of  their  dividends  made  up  out  of  the  earnings  le- 
gally applicable  to  the  payment  of  dividends,  whenever  such  earn- 
ings are  received,  in  preference  to  any  payment  to  the  holders  of 
the  common  stock.  This  right  is  inferred  from  the  contract,  and 
need  not  be  provided  for  in  express  terms.2  The  preferred  share- 
holders are  entitled  to  have  the  full  amount  of  their  dividends 
paid  before  any  payment  is  made  in  respect  of  dividends  upon 
the  ordinary  stock.  Such  dividends,  in  relation  to  the  common 
stock,  are  substantially  interest  chargeable  exclusively  on  profits  ; 
yet  there  is  nothing  in  such  a  use  of  the  word  dividend  which  is 
at  all  at  variance  with  the  ordinary  usage.3  Such  dividends  are 
not  payable  absolutely  or  unconditionally,  as  interest  is,  but  only 
out  of  profits  made  by  the  company.  If  there  are  no  dividends 
there  are  no  profits.  If  there  were  no  profits  last  year,  but  there 
are  profits  this  year,  the  arrears  of  dividends  at  the  stipulated 
rate,  payable  for  last  year,  together  with  the  dividends  for  this 
year,  are  both  to  be  paid  if  the  profits  are  sufficient  for  this  pur- 
pose. The  preference  is  limited  to  the  profits  of  the  company 
whenever  earned.4    Preferred  stockholders  do  not  lose  their  rights 

1  Thompson  v.  Erie  R.  Co.  42  How.  (N.  De  G.  &  J.  606,  per  Lord  Cranworth,  Lord 
Y.)  Pr.  68,  per  James,  J.  Chancellor;  S.  C.  4  Kay  &  J.  1. 

2  Cony  U.Londonderry  &  Enniskillen  4  Taftu.  Hartford,  Providence  &Fishkill 
Ry.  Co.  29  Beav.  263 ;  S.  C.  7  Jur.  N.  S.  R.  R.  Co.  8  R.  I.  310 ;  Crawford  v.  North 
508 ;  30  L.  J.  Ch.  290.  Eastern  Ry.  Co.  3  Jurist  N.  S.  1093  ;  S.  C. 

3  Henry  v.  Great  Northern   Ry.  Co.  I  3  Kay  &  J.  723  ;  London  India  Rubber  Co. 

602 


PREFERRED    STOCKHOLDERS   AS   AGAINST   MORTGAGEES.       [§§  621,  622. 

to  have  arrears  of  dividends  made  up  to  them  through  laches  in 
asserting  their  rights.1 

The  use  of  the  word  "guaranteed,"  in  connection  with  pre- 
ferred stock,  does  not  change  the  legal  effect  of  the  rights  of  the 
holder  of  such  stock.2 

621.  In  ascertaining  the  profits  of  a  railroad  company  for 
the  purpose  of  making  dividends  on  preferred  shares,  the  Mas- 
ter of  the  Rolls,  Romilly,  laid  down  the  following  rules :  3  "  I  am 
of  opinion  that  all  the  debts  of  the  company  are  first  payable, 
other  than  those  which,  for  want  of  a  better  expression,  may  be 
called  funded  debts ;  for  instance,  if  the  defendants  have  raised 
money  by  mortgage,  under  the  powers  contained  in  their  act,  for 
the  purpose  of  completing  their  line,  this  does  not  constitute  such 
a  debt  as  can  be  paid  off  out  of  the  profits  before  the  profits  are 
divided.  But,  on  the  other  hand,  any  debts  which  have  been  in- 
curred, and  which  are  due  from  the  directors  of  the  company, 
either  for  steam-engines,  for  rails,  for  completing  stations,  or  the 
like,  which  ought  to  have  been,  and  would  have  been  paid  at  the 
time,  had  the  defendants  possessed  the  necessary  funds  for  that 
purpose,  those  are  so  many  deductions  from  the  profits,  which, 
in  my  opinion,  are  not  ascertained  till  the  whole  of  them  are 
paid." 

622.  St.  John  v.  Erie  Railway  Company.4  —  Such  a  question 
arose  in  relation  to  the  preferred  stock  issued  by  the  Erie  Railway 
Company  between  the  years  1861  and  1869,  in  pursuance  of  a  con- 
tract of  reorganization  entered  into  in  1859  between  the  share- 
holders and  creditors  of  a  prior  corporation,  known  as  the  New 
York  and  Erie  Railroad  Company.  That  company  had  failed  to 
pay  some  of  the  interest  due  upon  bonds  issued  by  it  and  secured 
by  mortgages,  and  certain  of  its  unsecured  debts.  Foreclosure 
proceedings  had  been  commenced,  and  a  receiver  of  the  property, 

in  re,  37L.  J.  Ch.  235  ;  Matthews  v.  Great  supra  ;  Smith  v  Cork  &  Bandon  B 

Northern  By. Co.  5  Jur.  N.  S.  284;  Stevens  supra. 

p.  South  Devon  Ry.  Co.  13Beav.48;  S.C.        -  Tail  o.  Hartford,  Providence 

9  Hare,  313 ;  Smith  v.  Cork  &   Bandon  kill  li.  B.  Co     'r1"- 

■  \r.  B.3  Bq.  356;  affirmed  [r.  B.        :;  <«wy  v.  Londonderrj    S  Bnui 

r>  Eq.  65.     I;i  this  case  the  prior  cases  are  By.  Co.  29  Beav.  263,  272. 
reviewed  at  Length.  "  10  Blatchf.  871  ;  on  appeal,  82  Wall 

1  Matthews  v.  Great  Northern  By.  Co.  186. 

608 


§  G22.]         SCHEMES   AFFECTING   PRIORITY   OF   MORTGAGES. 

covered  by  at  least  two  of  the  five  mortgages  of  the  road,  had  been 
appointed.  The  shareholders,  and  bondholders  under  all  of  the 
mortgages,  and  the  unsecured  creditors,  then  entered  into  a  con- 
tract whereby  the  mortgaged  property  was  to  be  purchased  for 
the  account  of  the  parties  to  the  contract  at  the  foreclosure  sale. 
The  holders  of  the  mortgages  were  to  be  mortgagees  under  the 
new  company,  and  the  holders  of  unsecured  bonds  of  the  old  com- 
pany were  to  exchange  their  bonds  for  preferred  stock  equal  in 
amount.  The  contract  provided  that  the  "  preferred  stock  should 
be  entitled  to  preferred  dividends  out  of  the  net  earnings,  if 
earned  in  the  current  year,  but  not  otherwise,  not  to  exceed  seven 
per  cent,  in  any  one  year,  payable  semi-annually,  after  payment 
of  mortgage  interest  and  delayed  coupons  in  full."  The  new  cor- 
poration was  formed  under  legislative  authority,  and  preferred 
stock  to  the  amount  of  $8,500,000  and  upwards  was  issued.  Div- 
idends were  regularly  paid  on  this  stock  until  the  year  1868.  In 
1865,  after  the  preferred  stock  was  created,  the  company  issued 
one  million  pounds  of  sterling  bonds,  unsecured  by  mortgage,  bear- 
ing interest  at  six  per  cent,  per  annum  in  gold  coin.  They  were 
issued  for  money  borrowed  to  equip  and  repair  the  road,  and  the 
money  was  expended  for  these  purposes.  During  the  year  1868 
the  company  paid  the  interest  in  full  on  these  bonds  ;  but  on  the 
31st  of  December,  1868,  after  deducting  the  operating  expenses, 
the  interest  paid  on  the  mortgages  existing  January  1,  1862,  and 
the  rent  of  roads  leased  prior  to  that  date,  the  net  earnings  were 
sufficient  to  pay  only  a  partial  dividend  on  the  preferred  stock  ; 
and  of  course  if  no  interest  had  been  paid  by  the  company  on 
the  sterling  bonds,  and  no  rent  for  roads  leased  after  January  1, 
1862,  such  dividend  on  the  preferred  stock  would  have  been  in- 
creased. A  holder  of  preferred  stock  brought  a  bill  in  the  Cir- 
cuit Court  of  the  United  States  praying  that  the  court  would  as- 
certain and  adjudge  the  meaning  of  the  words  "  net  earnings," 
and  would  enjoin  the  company  from  applying  any  portion  of  the 
net  earnings,  after  payment  of  the  interest  on  the  mortgage  bonds, 
to  any  other  purpose  than  the  payment  of  a  dividend  on  the  pre- 
ferred stock.  It  was  claimed  in  his  behalf,  that  as  the  unsecured 
bondholders  stood,  when  the  contract  was  made,  next  in  order  as 
creditors  to  the  holders  of  the  mortgage  bonds,  they  became  en- 
titled to  occupy  the  same  relative  position  as  holders  of  preferred 
stock,  and  to  receive  their  dividends  on  such  stock  out  of  the  earn- 
604 


PREFERRED    STOCKHOLDERS    AS    AGAINST    MORTGAGEES.       [§  620. 

ings,  before  the  payment  of  interest  on  obligations  incurred  after 
the  issuing  of  such  stock  ;  that  the  words,  "  after  payment  of  mort- 
gage interest  and  delayed  coupons  in  full,"  did  not  mean  merely 
"  before  any  dividend  is  paid  on  the  common  capital  stock,"  but 
meant  "next  after  payment  of  mortgage  interest  and  delayed 
coupons  in  full ;  "  that  this  construction  is  sensible,  because  of  the 
prior  position  of  the  preferred  stockholders,  as  holders  of  unse- 
cured bonds  entitled  to  be  paid  interest  next  after  the  payment  of 
mortgage  interest;  that  they  did  not  waive,  but  preserved,  their 
position  as  entitled  to  such  interest,  and  only  modified  their  right 
in  regard  to  the  repayment  of  the  principal  of  their  debts ;  that 
the  preferred  stock  is  only  a  new  form  of  security  for  the  debts  in 
exchange  for  which  it  was  issued,  holding  the  same  place,  ami  en- 
titled to  be  paid  the  same  interest,  as  such  debts  were  entitled  to 
when  the  exchange  was  made  subject  to  the  proviso  as  to  the 
earning  of  the  interest  in  the  current  year ;  that  the  holders  of 
the  preferred  stock  are  not  subject  to  the  contingencies  of  new 
loans  and  new  leases,  and  extended  enterprises ;  that  while  the 
contract  contains  no  limitation  on  the  power  of  the  company  to 
issue  interest-bearing  securities,  it  contains  a  limitation  on  their 
power  of  disposing  of  their  net  earnings ;  that  the  shares  of  pre- 
ferred stock  are,  in  fact,  perpetual  bonds,  with  no  right  to  the  re- 
payment of  the  principal,  but  with  a  specified  preferential  right 
in  regard  to  interest;  that  the  fact  that  it  is  called  "stock,"  and 
that  it  is  declared  to  be  entitled  to  "  dividends,"  and  that  its  hold- 
ers have  an  equal  right  to  vote  with  the  holders  of  common  stock, 
cannot  destroy  the  rights  which  appertain  to  it  by  the  terms  of 
the  contract.  But  it  was  held  that  the  preferred  stockholders 
were  not  entitled  to  a  dividend  before  the  payment  of  interest  on 
such  bonds.1 

623.  The  terms  preferred  stock  and  preferred  dividends, 
taken  by  themselves  and  in  connection  with  other  words,  are  <  fo- 
mented upon  at  length  by  Judge  Blatchford  in  giving  the  opinion 
of  the  Circuit  Court  in  the  foregoing  case:  "I  d<>  no!  think  that 
a  fair  and  reasonable  construction  of  the  contract,  with  which 
the  language  of  the  statutes  and  of  the  certificates  of  Btock  is  in 
harmony,  sustains  the  views  urged  on  the  pari  ol  the  plaintiff. 
The  words  are  not, 'next  after  payment  of  mortgage  interest.1 

i  St.  John  v.  Eric  By.  <  '<>.  l"  Blatchf.  271. 

605 


§  623.]         SCHEMES  AFFECTING   PRIORITY    OF   MORTGAGES. 

They  are,  '  after  payment  of  mortgage  interest.'  The  contract,  in 
its  fifth  article,  provides  that  the  holders  of  the  unsecured  bonds 
agree  to  exchange  them  for  preferred  stock,'  'to  be  entitled  to 
preferred  dividends,  out  of  the  net  earnings.'  The  only  way  men- 
tioned in  the  contract,  in  which  the  stock  was  to  be  '  preferred 
stock,'  was,  that  it  was  to  be  entitled  to  '  preferred  dividends.' 
What  was  that  word  '  preferred  '  to  mean  ?  '  Preferred  '  over 
what  ?  Were  the  dividends  to  be  '  preferred '  over  and  to  be 
paid  before  the  mortgage  interest  on  the  five  mortgages,  so  as  to 
become,  in  fact,  by  the  agreement  of  the  holders  of  the  mortgage 
bonds,  who  were  parties  to  the  contract,  a  virtual  mortgage  on  the 
net  earnings  to  the  extent  of  such  dividends,  prior  to  the  lien  of 
the  five  mortgages  ?  But  for  some  expression  of  intention  in  the 
contract,  on  that  subject,  the  mere  word  '  preferred '  might  be 
construed  so  to  mean.  It  otherwise  might  mean,  not  merely  '  pre- 
ferred,' as  respected  the  holders  of  common  stock,  but  '  preferred,' 
as  respected  the  securities  held  by  all  other  parties  to  the  con- 
tract. Therefore  something  must  be  inserted  to  exclude  such  an 
inference,  and  to  secure  to  the  holders  of  mortgage  bonds  a  pri- 
ority as  to  the  payment  of  their  delayed  coupons,  and  of  their 
future  interest.  Such  priority  was  accordingly  secured  by  adding 
the  words,  '  after  payment  of  mortgage  interest  and  delayed  cou- 
pons in  full.'  There  is  nothing  to  show  that  the  words  have  any 
other  effect,  or  were  intended  to  have  any  other  effect.  An  in 
tention  that  they  should  have  such  an  effect,  which  is  a  reason- 
able effect,  is  inferable  from  the  fact  that  they  clearly  have  such 
an  effect,  and  it  is  unreasonable  to  infer  any  other  intention,  when 
that  intention  is  a  sufficient  reason  for  inserting  them.  Without 
them  there  is  nothing  to  give  the  mortgage  interest  a  priority 
over  the  '  preferred  dividends.'  In  this  view  it  is  impossible  to 
see  in  them  anything  except  the  expression  of  a  priority  in  favor 
of  the  mortgage  interest  over  the  '  preferred  dividends,'  and  im- 
possible to  see  in  them  any  expression  of  a  priority  in  favor  of  the 

'  preferred  dividends  '  over  anything The  former  holders 

of  the  unsecured  bonds  of  the  old  company,  by  taking  the  pre- 
ferred stock  in  exchange  for  their  bonds,  abandoned  their  position 
as  creditors,  and  became  merely  stockholders  in  the  new  company, 
as  against  their  existing  and  all  future  creditors  of  the  new  com- 
pany. They  acquired  the  same  right  to  vote  as  the  holders  of 
common  stock.  In  the  absence  of  any  expressed  intention  to  the 
606 


PREFERRED   STOCKHOLDERS  AS   AGAINST   MORTGAGEES.      [§  624. 

contrary,  it  would  be  very  unreasonable  to  suppose  that  the  gen- 
eral power  of  the  defendants  to  take  leases  of  roads  and  to  pay 
the  rents  of  them,  and  to  borrow  money  and  issue  bonds  there- 
for and  pay  the  interest  on  such  bonds,  would  have  been  subordi- 
nated by  the  legislature  or  by  themselves  to  the  rights  of  any  class 
of  their  stockholders,  and  equally  unreasonable  to  suppose  that 
the  claims  of  creditors  would  have  been  postponed    to  those  of 

stockholders Moreover,  the  views  urged  on  the  part  of  the 

plaintiff,  if  sound,  must  be  carried  to  their  legitimate  conclusions. 
The  money  has  been  borrowed  on  the  sterling  bonds.  Their 
holders  are  creditors.  If  the  company  should  become  bankrupt, 
are  the  claims  of  those  creditors  to  be  repaid  their  principal  to 
be  postponed  to  the  claims  of  the  preferred  stockholders,  in  re- 
spect to  the  capital  of  their  shares  ?  The  stock  is,  in  the  contract, 
declared  to  be  '  preferred  stock,'  as  well  as  to  be  entitled  to  '  pre- 
ferred dividends.'  The  statute  and  the  certificates  call  it  '  pre- 
ferred capital  stock.'  If  '  preferred  stock,'  why  should  it  not  have 
preference  over  the  principal  of  subsequently  created  debts,  if 
dividends  on  it  are  to  precede  the  payment  of  interest  on  such 
debts?  Yet,  such  a  claim  would  probably  never  be  advanced, 
and  certainly  would  not  be  admitted.  The  statement  in  the  con- 
tract, the  statute,  and  the  certificates,  that  the  '  preferred  divi- 
dends '  are  to  be  paid  out  of  the  '  net  earnings '  sheds  no  light,  one 
way  or  the  other,  for  a  solution  of  the  question.  The  mortgage 
interest  and  the  delayed  coupons  are  also  to  be  paid  out  of  the 
net  earnings.  Net  earnings  are  properly  the  gross  receipts,  less 
the  expenses  of  operating  the  road  to  earn  such  receipts.  Inter- 
est on  debts  is  paid  out  of  what  thus  remains,  that  is,  out  of  the 
net  earnings.  Many  other  liabilities  are  paid  out  of  the  net  earn- 
ings. When  all  liabilities  are  paid,  either  out  of  the  gross  re- 
ceipts, or  out  of  the  net  earnings,  the  remainder  is  the  profil  of 
the  shareholders,  to  go  towards  dividends,  which  in  that  way  are 
paid  out  of  the  net  earnings." 

624.  Preferred  dividends  payable  out  of  net  earnings  are 
not  in  the  nature  of  interest  constituting  a  debt,  bul  are  pay- 
able only  out  of  profits  in  the  manner  specified  bj  the  contract. 
The  decree  of  the  Circuit  Court,  in  the  case  lasl  under  consider- 
ation, waa  upon  appeal  affirmed  by  the  Supreme  Court   oi   the 

CUT 


§  624.]  SCHEMES   AFFECTING   PRIORITY   OF    MORTGAGES. 

United  States.1  Mr.  Justice  Swayne,  delivering  the  opinion  of 
the  court,  considered  the  effect  of  the  agreement  for  reorganization 
as  regards  the  preferred  stockholders.  "  The  original  takers  of 
the  preferred  stock  were  creditors.  They  abandoned  that  position 
and  became  stockholders.  They  thereupon  ceased  to  be  the 
former,  and  can  only  be  regarded  as  the  latter.  They  surrendered 
their  debts  and  received  in  return  stock  of  the  same  amount, 
which  gave  them  a  chance  for  annual  dividends  of  seven  per  cent., 
and  a  voice  by  voting  in  the  choice  of  those  by  whom  the  affairs 
of  the  company  were  to  be  administered.  What  they  were  to  re- 
ceive was  not  interest,  but  dividends  ;  and  they  were  to  receive 
them  in  priority  to  the  holders  of  the  common  stock.  The  latter 
could  receive  nothing  until  the  former  were  satisfied.  The  max- 
imum payment  on  the  preferred  stock  was  specified.  It  might  be 
less,  or  nothing.  It  could  not  be  more.  The  amount  subject  to 
the  limit  prescribed  depended  wholly  upon  the  residue  of  the  net 
earnings  applicable  in  that  way.  The  language  employed  is  apt 
to  express  the  relation  of  stockholders.  None  to  express  the  re- 
lation of  creditors  is  found  in  the  instrument;  and  there  is  noth- 
ing from  which  the  intent  to  continue  that  relation  any  longer  can 
be  inferred.  If  the  mortgages  were  foreclosed  and  there  were  a 
surplus  left  insufficient  to  satisfy  the  general  creditors,  it  is  quite 
clear  that  the  holders  of  the  preferred  stock  could  have  no  right 
to  share  in  the  fund."  The  claim  made  in  behalf  of  the  preferred 
stockholders,  that  the  net  earnings  are  predicated  of  things  as 
they  were  when  the  preferred  stock  was  issued,  the  learned  judge 
declared  to  be  without  support,  express  or  implied.  The  com- 
pany had  a  right  to  take  new  leases,  and  make  new  mortgages. 
It  had  the  right  so  to  conduct  its  operations,  in  good  faith,  as  it 
might  see  fit ;  and  it  was  from  them  and  all  of  them  that  the 
materials  for  the  computations  of  earnings  were  to  be  derived. 
In  conclusion,  it  was  the  judgment  of  the  court  that  the  rents  for 
the  year,  accruing  under  leases  taken  by  the  company  after  the 
issuing  of  the  preferred  stock,  and  the  interest  upon  the  sterling 
bonds  for  that  year,  were  properly  paid ;  and  that  there  were  no 
net  earnings  earned  in  that  year  which  could  be  properly  applied 
in  payment  of  preferred  dividends. 

1  St.  John  v.   Erie  Ry.   Co.  22  Wall,     ford,  Providence  &  Fishkill  R.  R.  Co.  8 
136.     See,  on  point  that  such  dividends     R.  I.  310,  335. 
are  not  a  debt  due  absolutely,  Tafty.  Hart- 

608 


CHAPTER   XXII. 

FORECLOSURE   SALES   UNDER   CORPORATE   MORTGAGES. 


I.  Sale  of  entire  property,  625-628. 

II.  Conduct  of  sale,  629-631. 

III.  "What  franchises  pass  by  the  sale,  632- 
635. 


IV.  Distribution  of  proceeds  of  sale,  636- 
641. 

V.  Setting  aside  of  sale,  642-652. 


I.    Sale  of  entire  Property. 

625.  Under  a  deed  of  trust  which  contemplates  but  one 
sale,  the  entire  property  may  be  sold  upon  a  default  in  the  pay- 
ment of  interest.  It  is  moreover  a  well  settled  rule  that  the 
whole  property  may  be  sold  upon  a  default  in  the  payment  of  in- 
terest before  the  principal  is  due,  when  the  property  cannot  be 
sold  in  parts  without  injury  to  the  whole.1  As  a  general  rule  it  is 
evident  that  a  continuous  line  of  railroad  cannot  be  cut  up  and 
sold  piecemeal  without  destroying  its  value.  The  unity  and  con- 
tinuity of  a  line  of  railroad  are  among  the  important  elements  of 
its  value.  Therefore,  although  a  mortgage  contains  no  provision 
making  the  whole  debt  due  upon  a  default  in  the  payment  of  in- 
terest, and  no  provision  authorizing  a  sale  of  the  whole  property 
covered  by  the  mortgage,  a  court  of  equity  will  upon  such  default 
order  a  foreclosure  and  sale  of  so  much  of  the  property  ;is  will 
satisfy  the  instalments  then  due  ;  2  and  generally  if  tin-  property 
cannot  be  divided  without  injury,  a  sale  of  the  whole  would  be 
decreed. 

When  under  a  deed  of  trust  of  a  railroad  and  all  its  property 
the  trustees  without  the  aid  of  a  court,  by  following  lit*-  terms  <>f 
the  deed,  might  sell  the  entire  line  of  road  upon  a  default  in  the 
payment  of  interest  before  the  maturity  of  the  principal,  the 
power  of  the  trustees  is  not  any  the  less  when  the  court  has  been 

1  Wilmer  v.  Atlanta  &  Richmond  Air  *  Goodman  v.  Cincinnati  &  Cbii 

Line  By.  Co.  2  Woods,  447.    See  2  Jones  EL  Co.  3  Dta.  (Ohio)  176 ;    Weil    Branch 

on  Mortgages,  §§  1616-1619.  Bank  v.  Chester,  n  Pa.  St.  2s_>. 

30  609 


§  626.]       FORECLOSURE   SALES   UNDER    CORPORATE    MORTGAGES. 

asked  by  the  bondholders  to  construe  the  deed  of  trust  and  to 
order  the  trustees  to  execute  it.  If  the  trustees  in  such  case  sell 
the  whole  road  as  an  entire  and  indivisible  property,  under  the 
direction  of  the  court,  they  do  so  by  virtue  of  the  power  vested  in 
them  by  the  deed.  The  court  does  not  foreclose  the  mortgage  as 
in  an  equitable  foreclosure.  It  does  not  confer  upon  the  trustees 
any  power  which  they  did  not  already  possess,  by  virtue  of  the 
deed  of  trust,  or  impose  upon  them  any  new  duties,  but  simply 
tells  them  what  their  powers  are  under  the  deed,  and  requires 
them  to  exercise  these  powers  for  the  benefit  of  the  cestuis  que 
trust.1 

626.  In  a  few  states  special  provision  has  been  made  by 
statute  in  regard  to  the  sale  of  the  entire  property.  Thus,  in 
Indiana2  it  is  provided  that  in  case  of  the  sale  of  any  railroad  and 
its  property,  under  or  by  the  authority  of  any  competent  court, 
part  of  which  railroad  may  be  situate  within  the  state  and  part 
in  an  adjoining  state,  and  embraced  in  the  mortgage  or  deed  of 
trust,  the  whole  may  be  sold  at  one  time  and  place,  as  an  en- 
tirety, at  such  point  on  the  line  of  said  railroad,  either  within  or 
without  the  state,  and  upon  such  notice  as  the  court  or  courts 
ordering  such  sale  may  direct. 

In  Kansas  3  it  is  provided  that  in  actions  to  enforce  a  mortgage 
or  deed  of  trust,  executed  by  any  railroad  company  upon  its  rail- 
road or  other  property,  or  any  portion  thereof,  if  the  property 
mortgaged  shall  be  situated  in  more  than  one  county  in  this  state, 
the  District  Court  of  any  one  of  such  counties  shall  have  jurisdic- 
tion to  render  judgment  against  such  company  for  the  amount 
found  due  in  the  same  manner  as  is  provided  by  law,  concerning 
other  debts  secured  by  mortgage  on  real  property,  and  to  decree 
and  enter  an  order  for  the  sale  of  said  mortgaged  property,  and  to 
provide  for  the  terms  and  method  of  payment  of  the  purchase 
price  of  the  property  ordered  to  be  sold ;  which  order  shall  be  di- 
rected to  the  sheriff  of  any  or  either  of  the  counties  in  which  said 
mortgaged  property  is  situated.  And  the  sheriff  to  whom  such 
order  may  be  directed  shall  have  power  to  sell  the  whole  of  said 

1  Wilmer  v.  Atlanta  &  Richmond  Air  March  3,  1865.  See  statute  in  New  Jer- 
Line  Ry.  Co.  2  Woods,  447,  456.  set,  R.  S.  1877,  p.  922,  §  77. 

2  1  R.  S.  1876,  p.  728,  ch.  218,  §  1,  Act        s  Laws    1876,   ch.  108,   §  1  ;    Dasslcr's 

Stats.  1876,  §4625. 

610 


SALE  OF  ENTIRE  PROPERTY.  [§  626. 

property  pursuant  to  the  order  of  the  court,  and  make  return  of 
his  proceedings  in  the  same  manner  as  may  be  provided  by  law  in 
ordinary  cases  of  foreclosure  of  mortgages  upon  real  estate  ;  and 
upon  the  coming  into  court  of  the  return  of  the  sale  by  the  sheriff, 
if  the  same  shall  be  found  to  have  been  made  in  compliance  with 
the  order  of  the  court,  the  court  shall  thereupon  confirm  the  sale, 
vesting  in  the  purchasers  title  to  the  property  sold,  and  order  the 
execution  of  a  deed  by  the  sheriff,  as  in  the  case  of  the  sale  of  real 
estate  upon  execution  or  other  final  process. 

In  Kentucky1  it  is  provided  that  sales  of  the  property  and  fran- 
chises of  railroad  and  turnpike  corporations,  when  adjudged  by  a 
court,  shall  be  after  such  notice  and  advertisement,  and  at  such 
place  as,  in  the  discretion  of  the  court,  shall  seem  proper  ;  and  if 
such  sales  are  made  on  the  foreclosure  of  one  or  more  mortgages 
or  deeds  of  trust,  the  court  may  order  such  sale  to  be  made  for 
the  whole  amount  of  the  outstanding  bonds  and  interest  secured 
by  such  deed  or  deeds  of  trust  or  mortgage ;  or  if  said  property 
and  franchises  will  produce  so  much,  then  for  the  amount  of  in- 
terest due  under  said  deed  or  deeds  of  trust  or  mortgage,  or  either 
of  them,  subject  to  the  payment  by  the  purchaser  of  the  out- 
standing bonds,  and  interest  secured  thereby,  as  they  become  due  ; 
and  in  the  latter  event  may,  by  proper  orders,  secure  the  assump- 
tion thereof  by  the  purchaser.  But  where  a  sale  shall  be  ordered 
to  be  made  subject  as  aforesaid,  the  court  shall  direct  the  officer 
making  such  sale,  in  the  event  that  such  property  and  franchises 
so  offered  do  not  sell  for  enough  to  pay  the  amount  aforesaid,  then 
to  sell  such  property  and  franchises  free  from  incumbrances. 
Sales  made  under  these  provisions  shall  be  on  such  credits  as  the 
court  may  deem  proper.  But  if  the  sale  be  made  subject  to  the 
payment  of  the  principal  as  aforesaid,  the  average  credit  shall  not 
be  less  than  two  years,  nor  more  than  four  years  :  and  where  the 
sale  is  not  made  subject  as  aforesaid,  the  average  credit  shall  not 
be  less  than  three  years,  nor  more  than  six  years. 

In  New  York  the  Supreme  Court  may  direcl  :i  sale  of  the 
whole  of  the  property,  rights,  and  franchises  covered  l>\  a  mort- 
gage or  deed  of  trust,  at  any  one  time  and  place  to  be  named  in 
the  judgment  or  order,  either  in  the  case  ol  the  Qon-paymenl  <>f 
interest  only,  or  of  both  the  principal  and  interest  due  and  un- 
paid and  secured  by  such  mortgage  or  deed  ol    trust.9 

1  Laws  187G,  cb.  447,  §  1.  ■  Lawi  I  876,  I  b.  I  W,  p.  i 

•  ill 


§§  627,  628.]      FORECLOSURE   SALES   UNDER   CORPORATE   MORTGAGES. 

627.  When  specific  property  subject  to  a  separate  incum- 
brance can  be  sold  separately  without  injury  to  other  property, 
as  for  instance  when  a  section  of  a  railroad  subject  to  a  separate 
raorto-ao-e  can  be  sold  by  itself,  without  sacrificing  the  whole  line 
of  road,  it  should  be  thus  sold  in  order  that  the  incumbrancer* 
may  have  a  chance  of  protecting  his  securities  without  involving 
himself  in  onerous  engagements.  Cases  sometimes  occur  where  a 
sale  of  the  entire  property  covered  by  different  mortgages  must 
be  made  absolutely,  and  the  different  claims  adjusted  upon  the 
fund  subsequently  ;  thus,  when  a  sale  of  a  portion  of  a  railroad, 
which  is  subject  to  a  separate  mortgage,  would  be  injurious  to 
the  entire  property,  which  is  subject  to  other  mortgages  under 
which  a  sale  of  the  entire  road  is  asked  for,  it  may  be  that  the 
only  just  course  that  can  be  pursued  is  to  sell  the  whole  and  ad- 
just the  rights  of  the  mortgagees  afterwards.1 

628.  Upon  the  foreclosure  of  a  mortgage  of  a  railroad  and 
its  franchises  for  a  failure  to  pay  an  instalment  of  interest, 
when  the  mortgage  contains  no  provision  that  the  principal  shall 
become  due  upon  such  a  default,  if  the  property  can  be  divided 
without  injury,  only  so  much  of  it  should  be  sold  as  will  satisfy 
the  amount  due  ;  but  if  it  is  not  susceptible  of  division,  as  would 
usually  be  the  case,  it  must  be  sold  as  an  entirety.  When,  how- 
ever, it  seems  probable  that  the  property  is  worth  much  more 
than  the  amount  of  the  debt  and  interest,  the  court  may  very 
properly,  upon  the  request  of  the  company,  order  the  property  to 
be  leased  for  the  shortest  term  that  will  produce  the  amount  due, 
and  the  accruing  interest.  The  court  should,  in  such  case,  require 
the  lessee  to  give  a  covenant  with  approved  security,  to  keep  the 
property  in  good  repair,  and  to  return  it  at  the  end  of  the  term 
in  as  good  condition  as  it  may  be  when  received.2 

After  a  sale  of  an  entire  road  has  been  made  upon  a  default  in 
the  payment  of  interest  due  upon  a  mortgage  of  it  before  the 
principal  debt  is  due,  the  proceeds  are  applied  in  the  first  place  to 
the  payment  of  the  interest  for  the  satisfaction  of  which  the  sale 
was  made,  and  the  remainder  is  brought  into  court,  to  be  disposed 
of  under  its  direction.3 

1  Campbell  v.  Texas  &  New  Orleans  R.  2  Bardstown  &  Louisville  R.  R.  Co.  v. 
R.  Co.  2  Woods,  263.  Metcalfe,  4  Mete.  (Ky.)  199. 

8  Wilmer  v.  Atlanta  &   Richmond  Air 
612  Line  Ry.  Co.  2  Woods,  447. 


CONDUCT   OF  SALE.  [§  629. 

II.   Conduct  of  Sale. 

629.  The  marshal  or  other  officer,  who  makes  a  sale  under 
a  decree  of  foreclosure,  is  not  only  invested  with  a  reasonable 
discretion  as  to  the  manner  of  conducting  the  sale,  but  is  not 
at  liberty  to  overlook  or  disregard  such  discretion.  Acting  under 
the  decree,  he  has  duties  to  perform  to  the  complainant,  to  the 
vendor  and  purchaser,  and  to  the  court,  and  is  bound  to  exercise 
his  best  judgment  in  the  performance  of  all  these  duties.  The 
usual  practice  is  for  the  officer  in  selling  the  property  to  act  under 
the  advice  of  the  solicitor  of  the  complainant.  "  Granting  that 
solicitors  may  properly  advise  the  officer,  still  it  must  be  borne  in 
mind  that  the  authority  and  discretion  in  making  the  sale  are  to 
a  certain  extent  primarily  vested  in  the  officer  designated  in  the 
decree.  Unreasonable  directions  of  the  solicitor  are  not  obliga- 
tory and  should  not  be  followed  ;  as  if  the  solicitor  should  direct 
the  property  to  be  struck  off  at  a  great  sacrifice  when  but  a  single 
bidder  attended  the  sale.  Under  such  circumstances  the  officer 
might  well  refuse  to  do  as  he  was  directed,  and  he  might  be  justi- 
fied in  postponing  the  sale  to  a  future  day  to  prevent  the  sacrifice 
of  the  property.  Every  such  officer  has  a  right  to  exercise  a  reason- 
able discretion  to  adjourn  such  a  sale,  and  all  that  can  be  required 
of  him  is,  that  he  should  have  proper  qualifications,  use  due  dili- 
gence in  ascertaining  the  circumstances,  and  act  in  good  faith,  and 
with  an  honest  intention  to  perform  his  duty."  :  In  a  case  of  a 
sale  of  a  railroad  under  a  decree  of  foreclosure  which  directed  the 
marshal  to  sell  at  public  auction,  unless  the  mortgagors,  previously 
to  such  sale,  should  pay  to  the  complainants  the  sum  of  8254,175, 
being  the  amount  of  the  decree,  four  different  adjournments,  ex- 
tending over  a  term  of  seven  months,  were  made  for  the  purpose 
of  enabling  the  mortgagors  to  make  an  arrangement  to  pay  the 
debt :  and  although  a  bid  of  nearly  the  whole  amount  of  the  debt 
was  made  on  the  second  day  fixed  for  the  sale,  and  the  whole 
amount  of  the  debt  was  bid  on  the  third  day  fixed  for  the  sale, 
and  the  adjournments  were  made  by  direction  of  the  complainant's 
solicitor,  the  company  having  redeemed  before  the  Eourth  day  to 
which  the  sale  was  adjourned,  it  was  held  thai  tin-  adjournments 
were  made  for  sufficient  cause,  and  the  Bale  was  properly  di  oon- 

«  Blossom  v.  RailroadCo.  :i  Wall.  196,  208,  per  Clifford,  .1.  Bee  9  Jonei  on  Mort 
gkges,  §§  1633-1635. 

618 


§  630.]       FORECLOSURE   SALES   UNDER   CORPORATE   MORTGAGES. 

tinned.  The  highest  bidder  has  in  such  case  no  right  to  insist 
upon  being  allowed  to  pay  the  amount  of  his  bid,  and  have  a  con- 
firmation of  the  sale  to  himself.1 


630.  A  mortgage  trustee  will  be  left  to  exercise  his  discre- 
tion as  to  the  time  of  making  sale  under  a  decree  of  foreclos- 
ure, and  as  to  making  a  sale  at  all  pending  an  appeal  from  the 
decree,  which  the  appeal  does  not  supersede.  The  trustee  is  the 
representative  of  all  the  bondholders,  and  it  is  for  him  to  deter- 
mine whether  the  best  interests  of  all  concerned  would  be  pro- 
moted by  a  sale,  and  individual  bondholders  have  no  right  to  in- 
sist upon  an  execution  of  the  decree. 

The  Central  Railroad  Company  of  Iowa  having  made  default 
in  payment  of  interest,  some  of  the  bondholders  requested  the 
trustee  to  foreclose  the  mortgage.  He  did  not,  however,  institute 
proceedings  to  foreclose,  and  thereupon  these  bondholders  brought 
suit  for  this  purpose  in  the  Circuit  Court  of  the  United  States  for 
the  District  of  Iowa,  and  made  the  trustee  a  party  to  it.  A  de- 
murrer, on  the  ground  that  the  trustee  only  could  bring  such  suit, 
was  overruled.  The  trustee  then  asked  and  obtained  permission 
to  file  a  bill  to  foreclose,  and  upon  filing  such  bill  the  action  was 
consolidated  with  that  commenced  by  the  bondholders.  A  decree 
of  sale  was  entered  at  the  October  Term,  1875,  upon  the  assump- 
tion that  the  parties  to  be  affected  assented  to  the  decree.  This 
assumption  was  not,  however,  well  founded,  for  certain  other  bond- 
holders, having  been  allowed  to  intervene,  took  an  appeal  to  the 
Supreme  Court  of  the  United  States.  They  perfected  the  appeal ; 
but  failing  to  give  bond  as  required,  the  supersedeas  was  dis- 
charged. A  committee  of  bondholders  asked  the  trustee  to  order 
the  special  master  to  proceed  with  a  sale  of  the  road,  and  the 
trustee  failing  to  do  this,  the  committee  directed  the  master  to 
sell.  This  he  refused  to  do.  The  trustee  thereupon  petitioned 
the  court  for  advice  in  respect  to  the  sale,  and  the  committee  of 
bondholders  moved  for  an  order  directing  the  trustee  and  master 
to  execute  the  decree.  Dillon  and  Love,  JJ.,  upon  a  hearing  in 
March,  1877,  declined  to  order  a  sale,  the  latter  saying  :  2  "  The 
appellants  are  seeking  to  get  the  decree  reversed.  It  must  be 
borne  in  mind  that  they  have  never  yet  had  the  judgment  of  any 

1  Blossom  v.  R.  It.  Co.  supra.  R.  R.  Co.  of  Iowa,   11  West.  Jurist,  428 ; 

2  Farmers'  Loan  &  Trust  Co.  v.  Central     5  Cent.  L.  J.  56 ;  4  Dill.  533. 

614 


CONDUCT   OF   SALE.  [§  630. 

court  upon  their  rights  and  equities  under  the  mortgage.     If  the 
court  had  passed  its  independent  judgment  upon  their  rights  and 
equities,  and  had  made  a  decree  disposing  of  them  accordingly, 
and  if  they  had  failed  to  supersede  the  decree,  I  do  not  see  that 
they  would  have  an}'  reason  to  complain,  even  though  they  could 
not,  in  the  event  of  a  reversal,  be  placed  as  to  their  rights  under 
the  mortgage  in  statu  quo.     But  in  the  absence  of  any  real  adju- 
dication by  the  court,  and  by  virtue  of  a  consent  decree,  to  which 
they  were  not  parties,  to  have  the  property  in  which  they  are  in- 
terested disposed  of,  so  that  in  the  event  of  a  reversal  they  cannot 
be  awarded  the  very  relief  to  which  they  would  be  entitled  by  the 
terms  of  the  mortgage,  would  seem  to  me  not  at  all  in  accordance 
with  the  principles  of  equity.     Again,  it  is  impossible  for  us  to 
know  what  the  decision  of  the  Supreme  Court  will  be,  and  what 
complications  may  consequently  arise  from  the  execution  of  the 
decree  in  the  mean  time.     Will  the  Supreme  Court  dispose  of  the 
case  with  reference  to  the  fact  that  the  decree  below  has  been  ex- 
ecuted, and  the  trust  property  placed  beyond  judicial  control,  or 
will  it  determine  the  controversy  with  reference  to  the  state  of  the 
case  and  property  at  the  time  when  the  decree  was  entered  below  ? 
I  confess  I  do  not  see  the  way  clear  in  the  future,  if  the  status  quo 
of  the  trust  property  be  changed,  as  required  by  the  terms  of  the 
decree.     On  the  contrary,  it  appears  to  me  that  no  complications 
can  possibly  arise  if  the  decree  be  not  executed.     Nor  can  I  see 
clearly  that  any  special  injury  will  result  to  the  parties  in  interest 
by  reason  of  the  delay.     If  the  majority  feel  aggrieved  by  the  re- 
fusal of  the  court  to  grant  their  present  motion,  I  suppose  they 
have  their  remedy:  they  can  apply  for  a  mandamus,  and  thus  Bub- 
mit  their  case  to  the  judgment  of  the  Supreme  Court,  and  it   it  be 
a  matter  of  right  in   them,  and  not  of  discretion  in   the  Circuit 
Court,  they  can  thus  obtain  redress." 

In  accordance  with  this  suggestion,  the  parties  wenl  before  the 
Supreme  Court  on  an  application  for  a  mandamus  to  compel  the 
Circuit  Court  to  execute  th.-  decree  by  a  sale  of  the  road,  but  the 
application  was  refused,  on  the  ground  that  the  trust,-  is  the  rep- 
resentative of  all  the  bondholders,  and  that  they  have  no  Legal 
right  to  insist  upon  an  execution  <»f  tin-  decree,  and  should  not,  in 
their  individual  capacity,  be  allowed  to  interfere  with  Ins  discre- 
tion, except  upon  strong  and  clear  rea  ons.  It"  they  are  dissatis- 
fied with  the  trustee,  their  remedy  i^  to  apply  to  have  him   re- 

615 


§  631.]       FORECLOSURE   SALES   UNDER    CORPORATE   MORTGAGES. 

moved,  under  a  provision  in  that  behalf  contained  in  the  trust 
deed,  and  get  a  trustee  to  carry  out  their  wishes  if  they  can. 

Afterwards,  at  the  May  term  of  the  Circuit  Court,  application 
to  compel  the  trustee  to  sell  the  road  under  the  decree  was  re- 
newed, when  Judge  Dillon,  with  the  concurrence  of  Judge  Love, 
again  refused  it,  saying,  after  reciting  the  action  of  the  Supreme 
Court  in  this  case,  that  while  the  decision  of  that  court  is  conclu- 
sive against  the  legal  right  of  these  parties  to  have  this  decree  ex- 
ecuted, at  the  same  time  there  is  no  restraint  in  the  decree,  or 
in  what  has  been  decided  in  either  court  against  its  execution ; 
that  the  appeal  did  not  supersede  it,  and  that  the  trustee  is  at  per- 
fect liberty,  whenever  he  sees  fit,  to  execute  the  decree ;  that  as 
far  as  the  court  is  concerned,  considering  the  trouble  this  road  had 
given  it,  by  reason  of  the  controversies  and  factions  among  the 
bondholders,  it  would  be  glad  if  the  trustee  could  see  his  way  clear 
to  execute  the  decree,  and  get  the  road  out  of  court,  and  into  the 
hands  of  parties  who  could  control  it  satisfactorily ;  that  it  should 
be  understood  that  the  trustee  incurs  no  personal  liability  by  ex- 
ecuting the  decree,  and  that  the  only  question  for  the  trustee  to 
determine  is  whether  the  best  interests  of  all  the  cestuis  que  trust, 
or  bondholders,  would  be  best  promoted  by  now  executing  the 
decree,  or  by  allowing  it  to  stand  until  the  determination  of  the 
appeal. 

631.  In  Kansas1  the  time  and  manner  of  making  sales  of 
railroads,  in  all  cases  of  foreclosure  of  mortgages  or  deeds  of 
trusts,  are  provided  for  by  statute.  No  sale  shall  take  place  at  the 
instance  of  the  trustee  named  in  said  mortgages  or  deeds  of  trust, 
by  virtue  of  any  judgment,  decree,  or  interlocutory  order  entered 
therein,  until  after  the  expiration  of  three  years  from  the  entry  or 
docketing  thereof,  unless  a  majority  of  all  the  holders  in  amount 
of  bonds  issued  in  pursuance  of  the  terms  of  the  mortgage  or 
deed  of  trust,  by  virtue  of  which  the  foreclosure  proceedings  are 
had,  and  the  judgment  obtained,  shall  petition  the  trustee  named 
in  such  mortgage  or  deed  of  trust  to  proceed  to  such  sale,  and 
said  trustee  shall  file  the  said  petition  with  the  clerk  of  the  court 
in  which   such  judgment,  decree,  or  order  has  been   entered  or 

i  Laws    of    1876,    ch.   Ill;    Dassler's     when  the  mortgaged  property  is  situate  in 
Stats.  1876,  §§  4627,  4631.      See  Laws  of     more  than  one  county. 
1877,  ch.  108,  for  act  regulating  procedure 

616 


WHAT    FRANCHISES   PASS   BY    THE   SALE.  [§  632. 

docketed,  when  the  complainant  in  such  suit  may  proceed  to  sell 
the  property  and  franchises  covered  by  said  mortgages  or  deeds  of 
trust,  in  accordance  with  the  terms  thereof,  or  as  directed  by  the 
court. 

In  case  any  person  other  than  the  owner  of  said  bonds  shall  sign 
such  petition,  representing  himself  as  the  agent,  trustee,  or  proxy 
of  said  owner,  his  authority  for  signing  the  same  must  be  in 
writing  or  printed,  and  executed  by  the  owner  of  said  bonds,  and 
be  duly  acknowledged  before  some  notary  public,  and  be  attested 
by  the  signature  and  official  seal  of  such  notary.  If  at  the  time 
of  the  entry  of  such  judgment,  decree,  or  order,  no  receiver  shall 
have  been  appointed  by  the  court  in  which  the  suit  is  pending,  it 
is  the  duty  of  the  court  to  appoint  a  receiver  to  take  charge  of, 
manage,  control,  and  operate  the  property  of  said  railway  com- 
pany, who  shall  be  subject  to  the  order  of  the  court,  and  possess 
and  exercise  all  the  powers  and  duties  of  receivers  generally,  to- 
gether with  such  special  powers  and  duties  as  the  said  court  shall 
delegate  to  him.  If  at  the  time  of  the  entry  of  such  judgment, 
decree,  or  order,  a  receiver  shall  have  been  heretofore  appointed, 
the  court  may  Continue  him  as  such  receiver,  with  all  the  powers 
and  duties  as  hereinbefore  indicated. 

Any  sale  made  contrary  to  the  provisions  of  this  act  is  abso- 
lutely void,  and  shall  convey  no  title  or  interest  whatever  to  any 
purchaser. 

III.    What  Franchises  pass  by  the  Sale. 

632.  The  franchise  to  be  a  corporation. — The  sale  of  the 
property  and  franchises  of  a  railroad  corporation,  under  a  decree 
to  satisfy  a  mortgage,  does  not  pass  to  the  purchaser  debts  due 
the  corporation,  nor  does  it  destroy  its  corporate  existence.  For 
the  purpose  of  collecting  and  paying  debts  the  corporation  still 
exists.1 

The  sale  b}T  one  railroad  company  to  another  of  a  portion  or 
division  of  an  existing  line  of  road  with  its  franchises  is  con- 
strued to  mean  only  the  franchise  of  operating  thai    pari  of  the 

road,  and   not  tin-  franchise  of  being  a  corporati and  of  suing 

and  being  sued  as  such.  Both  companies,  after  Buch  sale,  retain 
precisely  the  same  corporate  existence  they  had  before,  the  one 

i  Smith  r.  Gower,  a  Mete.  (Ky.)  171.    Bee  §§  15,  10. 

617 


§§  633,  634.]       FORECLOSURE   SALES   UNDER    CORPORATE   MORTGAGES. 

parting  with   and  the  other  acquiring  a  specific  piece  of  property 
with  the  franchise  necessary  to  its  use.1 

Under  a  statute  which  provides  that  a  corporation  shall  be  dis- 
solved b}'  a  mortgage  sale  of  its  franchises  and  property,  an  ille- 
gal and  fraudulent  sale  does  not  work  a  dissolution.2 

633.  A  mortgage  by  a  railroad  company  does  not  pass 
any  interest  in  land  which  it  has  occupied  for  its  uses,  but  for 
which  it  has  failed  to  pay  the  damages  assessed.  —  Its  interest 
in  such  land  is  a  mere  easement,  and  not  an  estate  in  the  land 
subject  to  lien  or  execution.  The  land-owner's  title  to  damages 
is  paramount  to  a  mortgage  given  by  the  railroad  company  be- 
fore the  damages  have  been  assessed  and  paid.  Although  he  al- 
lows the  company  to  construct  a  road  over  his  land,  and  to  use  it 
without  payment  of  damages,  and  thus  waives  the  trespass,  he 
does  not  necessarily  waive  his  claim  for  damages  ;  and  a  prose- 
cution of  his  claim  to  judgment  is  conclusive  against  such  waiver. 
A  sale  of  the  road  under  a  mortgage  before  the  damages  are  paid 
does  not  divest  the  land-owner  of  his  right  to  recover  compensa- 
tion for  the  occupancy  of  his  land  from  the  purchaser.3 

But  when  a  railroad  compan}^  being  unable  to  agree  with  the 
owners  of  lands  for  a  right  of  way,  gives  a  bond  with  sureties  and 
takes  possession,  a  sale  under  a  mortgage  subsequently  made  gives 
the  purchaser  a  clear  title,  and  the  land-owner  is  thrown  back 
upon  the  bond  for  his  damages.4 

Of  course,  a  right  of  way  acquired  by  a  railroad  company  by 
grant  from  the  land-owner  passes  by  a  mortgage  and  by  a  fore- 
closure sale  under  the  mortgage,  and  vests  in  the  purchaser.5 

634.  Interest  on  purchase  money.  —  When  a  purchaser  at  a 
judicial  sale  for  the  foreclosure  of  a  mortgage  is  immediately  put 
into  possession  of  the  propert}',  he  is  chargeable  with  interest  on 
the  amount  of  the  purchase  money  to  the  time  of  its  payment.6 

1  Wright  v.  Milwaukee  &  St.  Paul  Ry.  *  Fries  v.  Southern  Pa.  R.  R.  &  Mining 
Co.  25  Wis.  46.  Co.  85  Pa.    St.   73  ;    distinguished    from 

2  White  Mountains  R.  R.  v.  White  Western  Pa.  R.  R.  Co.  v.  Johnston,  59  Pa. 
Mountains  R.  R.  50  N.  H.  50.  St.  290. 

8  Western  Pennsylvania   R.  R.  Co.    v.  5  Juuction  R.  R.  Co.  v.  Ruggles,  7  Ohio 

Johnston,  59  Pa.  St.  290  ;  Pfeifer  v.   She-  St.  1. 

boygan  &  Fond  du  Lac  R.  R.  Co.  18  Wis.  6  Haven   v.    Grand   Junction    R.  R.  & 

164.  Depot  Co.  109  Mass.  88. 
618 


DISTRIBUTION   OF    THE   PROCEEDS    OF   SALE.       [§§  685,  636. 

635.  A  purchaser  at  a  foreclosure  sale  under  a  decree  in 
chancery  subjects  himself  to  the  jurisdiction  of  the  court, 
and  can  be  compelled  to  perform  his  agreement  specifically.  He 
undoubtedly  has  the  corresponding  right  to  appear  and  claim  at 
the  hands  of  the  court  such  relief  as  the  rules  of  equity  proceed- 
ings entitle  him  to.  If  the  court  refuses  to  order  the -sale  either 
to  be  set  aside  or  completed,  he  may  carry  the  matter  by  appeal 
to  the  appellate  tribunal.  The  act  complained  of  is  not  a  mere 
ministerial  duty,  necessarily  growing  out  of  the  decree  which  is 
being  carried  into  effect,  but  the  purchaser  has  in  the  course  of 
the  subsequent  proceedings  in  the  case  acquired  rights  which  the 
court  is  bound  to  protect,  and  has  become  a  quasi  party  to  the 
proceedings.1 

A  deci-ee  confirming  a  foreclosure  sale,  if  it  is  final,  may  be  ap- 
pealed from.2  Upon  such  an  appeal  from  the  Circuit  Court  of 
the  United  States  to  the  Supreme  Court,  the  refusal  of  the  former 
court  to  accept  a  supersedeas  bond,  when  offered  during  the  term 
at  which  the  decree  was  rendered,  does  not  take  from  a  judge  of 
that  court,  or  a  justice  of  the  Supreme  Court,  the  power  to  ap- 
prove one  thereafter.3 

IV.    Distribution  of  the  Proceeds  of  Sale. 

636.  In  the  distribution  of  the  proceeds  of  a  foreclosure 
sale,  liens  at  law  have  precedence  of  equities.  Thus,  land  was 
sold  to  a  railroad  company  under  an  agreement  that  the  vendor 
should  receive  as  part  of  the  consideration  bonds  of  the  company 
secured  by  a  second  mortgage  to  be  issued.  He  delivered  the 
deecl,  but  before  the  mortgage  was  issued  the  company  confessed 
certain  judgments.  The  vendor  then  refused  to  receive  the  bonds 
because  of  the  judgments,  and  the  bonds  were  thereupon  other- 
wise appropriated  by  the  company.  Upon  a  distribution  of  the 
proceeds  of  a  foreclosure  sale,  it  was  held  that  the  vendor,  having 
rejected  the  bonds,  had  no  further  claim  upon  them,  and  the  com- 
pany could  dispose  of  them  as  it,  pleased  ;  and  that  the  mortgage 
having  been  given  to  secure  the  bonds  and  the  vendor  not  own- 
ing them,  he  had  no  lien,  equitable  or  legal,  through  the  mortgage 

i  Blossom  v.  Milwaukee,  &c.  I:.  R.  ( '<>.  Butterfield  v.  Usher,  91  U.  S.  246;  Blos- 

l  \V;ill.  655.    See  2  Jones  on  Mortgages,  sum  v.  Milwaukee,  &c.  R  R  Co.  i  Wall. 

§§  1642-1651.  055. 

2  Saj^e  v.  Railroad   Co.   90   U.  S.  712;  8  Sa^e  r.  Railroad  Co.  supra. 

619 


§§  637,  638.]       FORECLOSURE    SALES   UNDER   CORPORATE   MORTGAGES. 

for  the  purchase  money  for  which  the  bonds  were  to  be  delivered 
to  him.1 

637.  Every  bond  is  entitled  to  its  pro  rata  share.  —  In  the 
distribution  of  the  proceeds  of  a  foreclosure  sale  under  a  mortgage 
securing  a  series  of  bonds,  the  holders  of  the  bonds  share  pro  rata 
in  the  distribution  ;  and  if  the  holder  of  a  bond  is  entitled  to  its 
proceeds,  the  holder  of  other  bonds  cannot  set  up  mere  informali- 
ties in  the  manner  of  its  acquisition.  The  question  of  ownership, 
whether  at  law  or  in  equity,  is  immaterial.  The  time  and  man- 
ner of  the  transfer  of  the  bonds  are  not  material ;  the  only  real 
question  is  whether  each  holder  is  entitled  to  the  bonds  he  claims. 
Each  bond  carries  with  it  a  fractional  interest  in  the  proceeds  of 
the  mortgaged  property,  determined  by  the  proportion  the  amount 
of  the  bond  bears  to  the  whole  amount  secured.2 

638.  In  distributing  the  proceeds  of  a  foreclosure  sale  the 
payment  of  coupons  which  matured  before  a  general  default 
may  be  preferred  by  the  court  when  there  is  nothing  in  the  mort- 
gage requiring  a  pro  rata  distribution.  Thus,  upon  the  sale  of 
the  New  York  and  Oswego  Midland  Railroad  Company,  Judge 
Blatchford  ordered  that  unpaid  coupons  or  interest  belonging  to 
a  class  in  which  a  part  of  the  coupons  or  of  the  interest  has  been' 
paid  should  be  paid  before  coupons  or  interest  falling  due  at  a 
later  date,  and  before  the  principal  of  any  of  the  bonds  ;  and  that 
coupons  detached,  and  in  the  hands  of  others  than  the  holders  of 
the  bonds  from  which  they  were  detached,  should  be  paid  before 
such  bonds.3  On  July  first,  1873,  the  company  made  default 
in  the  entire  amount  of  interest  then  falling  due,  amounting  to 
$280,000,  and  never  made  any  payment  afterwards.  The  unpaid 
interest  previously  due  amounted  to  about  $30,500,  which  had 
matured  at  different  times  for  several  years  previous.  Against 
this  pi'eference  it  was  contended  that  there  was  no  principle,  legal 
or  equitable,  upon  which  it  could  be  made  ;  that  it  was  not  shown 
that  payment  of  the  interest  was  ever  demanded  and  refused  ; 
that  no  right  to  be  paid  the  interest  accrued  until  demand  and 
refusal,  and  until  then  there  was  no  default ;  that  the  company 

1  Rice's  Appeal,  79  Pa.  St.  168.  R.  R.  Co.  13  Blatchf.  412  ;    and  see  Vir- 

2  Hodge's  Appeal,  84  Pa.  St.  359.  ginia  v.  Chesapeake  &  Ohio  Canal  Co.  32 

3  Slevens  v.  N.  Y.  &  Oswego  Midland     Md.  501. 

6>20 


DISTRIBUTION   OF   THE  PROCEEDS   OF   SALE.  [§  G38. 

was  justified  in  paying  subsequently  maturing  interest,  even 
though  prior  maturing  interest  remained  unpaid,  so  long  as  the 
payment  of  such  prior  maturing  interest  had  not  been  demanded  ; 
that  he  is  prior  in  right  who  is  prior  in  the  time  of  presenting  his 
demands,  when  presentment  is  required  ;  and  that  those  who, 
prior  to  July  first,  1873,  received  their  interest,  received  no  prefer- 
ence as  against  those  who  did  not  receive  their  interest,  because 
the  latter  did  not  demand  it  and  the  former  did.  The  general 
principle  was  invoked,  that,  where  general  debts  are  secured  by 
one  and  the  same  mortgage,  and  become  due,  and  the  mortgage 
is  then  foreclosed,  they  will  be  paid  pro  rata  from  the  fund,  if  it 
is  insufficient  to  pay  the  whole  of  them  ;  and  that  the  only  excep- 
tion to  this  rule  is  where  the  mortgage,  by  its  terms,  creates  a 
preference  in  favor  of  some  of  the  debts,  or  where  the  original 
creditor,  as  to  any  which  he  has  assigned,  has  designed  to  confer  a 
right  of  prior  satisfaction  on  the  assignee. 

In  support  of  the  preference  it  was  contended  that  as  to  the  in- 
terest which   matured  prior  to  July  first,  1873,  inasmuch  as  some 
of  the  parties  entitled  to  it  had  received  it,  and  some  had  not,  the 
former  will  have  received  a  preference,  unless  the  latter  are  now 
to  be  put  on  an  equal  footing.     To  this  it  was  replied  that  there 
really  was  no  preference  ;  that,  so  long  as  the  debtor  was  solvent, 
every  party  entitled  to  interest  was  paid  as  he  presented  his  ma- 
tured claim  ;   that,  if  he  did  not  present  it,  he  took  the  risk  of  the 
debtor's  becoming  insolvent ;  and  that  he  had  no  special  property 
in,  or  lien  on,  the  funds  of  the   debtor,  which  could  require  the 
debtor  to  set  apart  funds  sufficient  to  pay  undemanded  matured 
interest  which  fell  due  at  an  earlier  date,  before  paying  demanded 
matured  interest  falling  due  at  a  later  date.     Judge  Blatchford, 
delivering  the  opinion  of  the  court,  said  :  "  I  do  not  think  any  dis- 
tinction can  be  made  between  interest  which  matured  before  July 
first,  1873,  and  interest  which  matured  on  that  day,  growing  out 
of  the  fact  that  payment  of  the  latter  was  demanded  and  refused, 
or  a  demand  was  waived,  and  that  the  former  was  not  demanded. 
I  do  not  see   how   any  diligence   of  those  of  a  given  class   who 
were  paid  their  interest,  in  asking  to  have  it  paid,  can  be  imputed 
as  laches  to  others  of  the  same  class  who  did   not  ask   to  be  paid 
their  interest,  so  as  to  work  a  virtual    preference  in   favor  of  the 
former.     To  give  to  the  hitter  their  interest  in   full,  before  pay- 
ing the  principal  of  the  bonds,  is  only  to  put  all   those  in  a  given 

621 


§  638.]       FORECLOSURE   SALES   UNDER   CORPORATE   MORTGAGES. 

class  entitled  to  interest  on  an  equal  footing ;  and  to  put  them  on 
such  equal  footing  requires,  also,  that  interest  maturing  at  an 
earlier  date  shall  be  paid  before  interest  maturing  at  a  later  date. 
Here  are  special  equities,  it  seems  to  me,  which  would  be  vio- 
lated, if  such  an  inequality  were  left  to  exist  as  the  exclusion 
from  the  full  payment  of  interest  of  some  of  a  given  class.  There 
is  nothing  in  the  terms  of  the  mortgage,  in  this  case,  which  re- 
quires such  exclusion.  On  the  contrary,  the  mortgage  provides 
that,  after  default,  the  mortgagees  shall  sell  so  much  of  the  mort- 
gaged property  '  as  shall  be  necessary  to  pay  and  discharge  the 
principal  and  interest,  according  to  the  tenor  thereof,'  of  all  the 
bonds  issued,  and  shall,  out  of  the  moneys  arising  from  such  sale, 
pay  the  principal  and  interest  which  shall  then  remain  due  and 
unpaid  on  the  issued  bonds.  The  words,  'according  to  the  tenor 
thereof,'  may  very  well  be  held  to  embrace  the  payment  of  in- 
terest, according  to  the  times  of  the  semi-annual  recurrences  of 
interest,  and  in  such  order.  Certainly,  there  is  nothing  in  these 
words,  or  elsewhere  in  the  mortgage,  that  forbids  a  course  which 
is  absolutely  necessary,  unless  a  result  is  to  be  effected  which  will 
not  be  a  payment  of  interest  according  to  the  tenor  of  the  bonds, 
but  will  leave  some  part  of  a  given  instalment  of  interest  paid  in 
full,  and  the  rest  of  it  not  paid  in  full.  In  the  case  of  Dunham 
v.  Cincinnati,  Peru,  $c.  Ry.  Company,1  the  mortgage  provided, 
that  in  case  of  default  and  a  sale,  all  bonds,  and  the  interest  ac- 
crued thereon,  should  be  equally  due  and  payable,  and  entitled  to 
a  pro  rata  dividend  of  the  proceeds  of  sale.  Hence  it  was  held 
that  there  could  be  no  preference  of  past  due  coupons  over  the 
principal  of  the  bonds.  No  case  was  cited  on  the  argument  which 
decides  the  above  question  adversely  to  the  view  I  take.  Most  of 
the  cases  cited  were  not  cases  of  coupons  or  interest  on  numer- 
ous bonds  secured  by  mortgage,  and  none  of  them  were  cases 
where  some  interest  in  a  given  class  had  been  paid  and  the  rest 
not  paid,  and  the  fund  was  insufficient  to  pay  all  the  principal 
and  interest  due.  The  case  of  Sewall  v.  Brainerd2  was  not  such 
a  case,  nor  was  the  case  of  Miller  v.  Rutland  $  Washington  Rail- 
road Company ; 3  and,  in  the  latter  case,  no  preference  was 
claimed." 

The  coupons  which  fell  due  July  first,  1873,  were  not  paid  by 
the  railroad  company,  but  they   were   detached  from  the  bonds 

1  1  Wall.  254.  2  38  yt.  364.  »  40  Vt.  399. 

622 


DISTRIBUTION   OF   THE   PROCEEDS   OF   SALE.       [§§  639,  640. 

and  cashed  by  other  parties.  They  were  regarded  by  the  court 
as  having  a  special  equity.  "  It  was  through  the  advance  of  money 
to  cash  those  coupons  in  the  hands  of  the  holders  of  the  bonds  to 
which  they  belonged,  that  such  holders  obtained  the  money  for 
those  coupons.  On  such  advance,  those  coupons  passed  into  the 
hands  of  those  who  now  hold  them.  But  for  such  advance,  the 
coupons,  in  the  hands  of  the  original  holders  of  them,  would  not 
have  been  worth  their  face  value,  as  they  were  made  to  be  by 
such  advance.  The  original  holders  of  such  coupons  must  be  re- 
garded as  still  holding  the  bonds  to  which  such  coupons  belonged, 
or,  if  not,  those  who  hold  such  bonds  and  subsequently  maturing 
coupons  belonging  thereto  must  be  held  to  be  subject  to  the  same 
equities  with  such  original  holders.  No  special  reasons  are  shown, 
in  the  evidence,  why,  as  against  any  of  such  holders,  the  present 
holders  of  coupons  of  July  first,  1873,  are  estopped  from  claim- 
ing priority.  Those  who  had  their  coupons  of  July  first,  1873, 
cashed  by  means  of  such  advance,  retained  the  money,  and,  to 
permit  them  now  to  exclude  the  holders  of  such  coupons  from 
being  paid  in  full,  and  put  on  an  equality  with  the  registered 
interest  of  July  first,  1873,  which  was  paid  in  full,  would  be  to 
permit  them  to  work  an  inequality  which  would  be  unjust."1 

639.  One  who  holds  bonds  as  collateral  security  should 
receive  only  the  amount  of  his  loan  and  interest,  and  not  the 
full  amount  of  the  bonds  or  of  the  dividend  upon  them.2  This 
principle  was  applied  to  a  case  where  a  person  authorized  to  raise 
money  on  the  negotiable  bonds  of  a  corporation  borrowed  money 
on  his  own  note,  and  pledged  bonds  to  the  lender,  and  applied 
the  money  to  the  use  of  the  corporation.  In  a  distribution  of  the 
proceeds  of  a  foreclosure  sale,  the  lender  was  not  allowed  to  re- 
ceive the  full  amount  of  the  bonds  and  account  to  the  person  who 
negotiated  them,  but  was  only  entitled  to  his  loan  and  interest.3 

640.  Upon  the  foreclosure  of  a  railroad  mortgage  no  part 
of  the  proceeds  of  the  foreclosure  sale  can  be  distributed 
among  the  stockholders  of  the  corporation,  in  accordance  with 
any  previous  arrangement  between  them  and  the  mortgagees,  as 
against  the  general  creditors  not  secured  by  the  mortgage.     Sub- 

i  See  §§  328-331.  3  life's  Appeal,  7:i  Pa.  St.  1G8. 

2  See  §  435. 

628 


§  640.]      FORECLOSURE   SALES   UNDER   CORPORATE   MORTGAGES. 

ject  to  the  lien  of  the  mortgages  the  property  of  the  road  is  in 
the  corporation  ;  and  if  anything  remains  upon  a  foreclosure  of 
a  mortgage  after  discharging  the  mortgage  liens  it  belongs  to 
the  corporation  as  a  trust  fund  for  the  benefit  of  its  general  cred- 
itors, and  does  not  belong  primarily  to  its  stockholders.  The 
stockholders  are  not  entitled  to  receive  anything  from  a  distribu- 
tion of  the  proceeds  of  a  foreclosure  sale.  The  corporation  is 
entitled  to  the  surplus  after  the  payment  of  its  debts,  and  the 
stockholders  are  entitled  to  a  share  of  the  surplus  only  after  the 
payment  of  all  the  debts  of  the  corporation. 

These  principles  are  illustrated  by  a  case  decided  by  the  Su- 
preme Court  of  the  United  States  upon  appeal  from  the  Circuit 
Court  for  Iowa.1'  The  Mississippi  and  Missouri  Railroad  Com- 
pany having  incumbered  its  property  by  five  several  mortgages 
securing  bonds  to  the  aggregate  of  $7,000,000,  a  sum  greatly 
exceeding  the  value  of  the  property,  became  insolvent,  and  the 
Chicago  and  Rock  Island  Railroad  Company  made  overtures  for 
the  purchase  of  the  road,  offering  to  give  for  it  $5,500,000,  a  sum 
more  than  its  value,  upon  the  condition  of  getting  title  at  once. 
The  only  way  of  accomplishing  this  seemed  to  be  by  a  foreclosure 
of  one  of  the  mortgages  ;  and  as  it  was  supposed  that  it  was  in 
the  power  of  the  stockholders  to  delay  the  foreclosure  an  arrange- 
ment was  made  between  the  stockholders  and  the  mortgagees 
whereby  the  different  classes  of  bondholders  were  to  receive  speci- 
fied amounts,  ranging  from  thirty  to  one  hundred  per  cent,  of  the 
amount  of  their  bonds,  and  the  stockholders  were  to  receive  six- 
teen per  cent,  of  the  par  value  of  their  stock,  amounting  to 
$552,400,  but  no  provision  was  made  for  the  payment  of  the 
general  creditors  of  the  company.  Pursuant  to  this  agreement 
the  property  was  sold  under  foreclosure,  and  the  purchaser  con- 
veyed it  to  the  Chicago,  Rock  Island,  and  Pacific  Railroad  Com- 
pany, a  new  corporation  formed  under  the  laws  of  Iowa  to  super- 
sede the  two  companies  before  named.  Before  the  sum  arranged 
for  division  among  the  stockholders  was  distributed,  certain  judg- 
ment creditors  of  the  first  named  company  appeared  as  claim- 
ants of  this  fund.  The  court  held  that  this  arrangement  was 
fraudulent  as  against  general  creditors  of  the  company,  who  were 
entitled  to  the  undistributed  fund ;  and  it  was  regarded  as  imma- 
terial that  the  property  was    mortgaged  for    more   than  it   was 

1  Railroad  Co.  v.  Howard,  7  Wall.  392. 
624 


SETTING   ASIDE    OF    SALE.  [§§  641,  642. 

worth,  and  that  if  it  had  been  sold  under  an  ordinary  foreclosure, 
without  any  arrangement  between  the  mortgagees  and  stock- 
holders, the  whole  proceeds  of  the  sale  would  have  belonged  to 
the  mortgagees. 

641.  Any  surplus  of  proceeds  of  a  foreclosure  sale  remain- 
ing after  satisfying  the  mortgage  for  the  payment  of  which  the 
sale  was  made  belongs  to  the  holders  of  subsequent  liens  upon  the 
property,  and  in  absence  of  such  to  the  corporation  owning  the 
equity  of  redemption.1  In  the  hands  of  the  corporation  such 
surplus  is  subject  to  its  unsecured  debts.  The  corporation  takes 
it  as  a  trust  for  its  general  creditors,  and  its  stockholders  have  no 
claim  upon  it  until  all  its  debts  are  satisfied.  In  this  respect  the 
rule  is  the  same  although  the  sale  be  made  in  pursuance  of  an 
arrangement  between  the  mortgage  bondholders  and  the  stock- 
holders, whereby  the  bondholders  were  to  receive  eighty-four  per 
cent,  of  the  proceeds  in  full  satisfaction  of  their  bonds,  and  the  re- 
mainder was  to  be  distributed  among  the  stockholders.  The  lien 
of  the  mortgage  being  discharged  by  the  payment  of  such  per- 
centage as  a  compromise,  whatever  remains  of  the  mortgaged 
property  belongs  to  the  corporation,  and  is  subject  like  its  other 
assets  to  the  payment  of  its  debts.  To  a  creditor's  bill  to  prevent 
the  distribution  of  such  fund  among  the  stockholders  of  the  cor- 
poration before  its  debts  are  paid,  and  to  subject  the  fund  to  the 
payment  of  its  debts,  the  stockholders  are  not  necessary  parties. 
The  corporation  holds  the  fund  in  trust  for  the  benefit  of  its 
creditors  in  the  first  instance,  and  for  the  benefit  of  its  stockhold- 
ers secondarily.2 

V.  Setting  aside  of  Sale. 

642.  Proceedings  to  set  aside  as  fraudulent  a  decree  of 
foreclosure,  and  a  sale  under  it,  must  be  commenced  within 
a  reasonable  time  after  such  sale.  What  length  of  delay  will 
defeat  a  recovery  must  depend  upon  the  particular  circumstances 
of  each  case.  The  Supreme  Court  of  the  United  States  in  one 
cast;  held  that  a  suit  commenced  five  years  after  a  sale  under  a 
railroad  mortgage  did  not  show  a  sufficient  degree  of  diligence  to 
justify  the  overthrow  of  the  decree  of  foreclosure.3     If  ignorance 

1  Sec  2  Jones  on  Mortgages,  §§  1C84-        >  Harwood  '■•   Railroad   Co.    17   Wall 
1098.  78.     See  2  Jones  on  Mortgages,  §  1074. 

2  Railroad  Co.  v.  Eoward,  7  Wall.  392. 

40  625 


§  643.]       FORECLOSURE    SALES    UNDER    CORPORATE   MORTGAGES. 

of  the  frauds  be  alleged  as  an  excuse  for  the  delay,  the  bill  should 
show  specifically  when  the  knowledge  of  the  frauds  was  first  ob- 
tained, or  should  give  a  satisfactory  reason  why  such  knowledge 
was  not  sooner  obtained.1 

When  a  suit  is  brought  to  set  aside  as  fraudulent  a  foreclosure 
sale  after  a  long  delay,  such  for  instance  as  five  years,  the  cause  of 
the  delay  should  be  specifically  set  out.  An  allegation  in  general 
terms  of  ignorance  of  the  fraudulent  acts  and  arrangements  relied 
upon  is  insufficient.  It  must  appear  by  allegation  and  proof  that 
the  complainant  has  not  slept  too  long  upon  his  knowledge  of  the 
fraud.2 

Mortgagors  may  obtain  relief  from  a  fraudulent  sale,  if  they 
apply  for  it  within  a  reasonable  time  after  discovering  the  fraud. 
Thus,  where  a  mortgage  trustee  received  a  bribe  from  the  pur- 
chasers at  the  sale  to  induce  him  to  act  in  their  interest,  and  the 
mortgagors  remained  ignorant  of  the  bribery  for  eight  years,  a  bill 
brought  within  two  years  after  this  discovery  was  deemed  to  be 
within  a  reasonable  time.3 

643.  The  right  of  a  corporation  to  avoid  a  sale  of  its  prop- 
erty, by  reason  of  the  fiduciary  relations  of  the  purchaser,4 
must  be  exercised  within  a  reasonable  time  after  the  facts  relating 
to  it  are  known,  or  can  by  due  diligence  be  ascertained.  What 
this  time  is  has  never  been  held  to  be  any  determined  number  of 
days  or  years  as  applied  to  every  case,  like  the  statute  of  limita- 
tions, but  must  be  decided  in  each  case  upon  all  the  elements  of  it 
which  affect  that  question.  These  are  generally  the  presence  or 
absence  of  the  parties  at  the  place  of  the  transaction,  their  knowl- 
edge or  ignorance  of  the  sale,  and  of  the  facts  which  render  it 
voidable,  the  permanent  or  fluctuating  character  of  the  subject- 
matter  of  the  transaction  as  affecting  its  value,  and  the  actual  rise 
or  fall  of  the  property  in  value  during  the  period  within  which 
this  option  might  have  been  exercised.6  Thus,  a  very  much  longer 
time  might  be  allowed  to  assert  this  right  in  regard  to  real  estate 
whose  value  is  fixed,  on  which  no  outlay  is  made  for  improvement, 

1  Harwoody.  Railroad  Co.  17  Wall.  78.  4  See  2  Jones  on  Mortgages,   §§    1636, 

2  Hanvood  v.  Railroad  Co.  supra.  1876-1888. 

3  White  Mountains    R.   R.    v.    White  5  Twin-Lick  Oil  Co.  v.  Marbury,  91  U. 
Mountains  R.  R.  50  N.  H.  50  ;  and  see  S.  587,  per  Miller,  J. 

Sullivan  v.  Portland  &  Kennebec  R.  R.  Co. 
94  U.  S.  806. 

626 


SETTING   ASIDE   OF   SALE.  [§  644. 

and  in  the  value  of  which  there  can  be  but  little  change,  than 
Avould  be  allowed  in  respect  to  property  which  is  subject  to  rapid, 
frequent,  and  violent  fluctuations,  such  as  mining  property,  or 
property  adapted  to  the  production  of  mineral  oil  from  wells. 
Therefore,  where  a  director  of  a  corporation  who  was  secured  by 
a  trust  deed  of  such  property  purchased  the  property  at  a  fore- 
closure sale  under  this  deed,  and  the  sale  was  fairly  made,  and 
all  the  facts  on  which  their  right  to  avoid  the  contract  depended 
were  immediately  known  to  all  the  stockholders,  who  refused  to 
join  in  the  purchase,  or  to  pay  assessments  then  made  on  their 
stock,  the  corporation  was  not  allowed  nearly  four  years  after- 
wards, when  the  purchaser,  taking  all  the  risk,  had  made  his  in- 
vestment profitable,  to  hold  the  purchaser  as  trustee  of  the  prop- 
erty, and  liable  to  account  for  the  profits  during  the  time  he  had 
been  in  possession  of  it.1 

644.  A  director  of  a  corporation  having  in  good  faith  made 
a  loan  to  it  and  taken  security  in  the  form  of  a  deed  of  trust 
of  real  estate  may  properly  purchase  the  property  at  a  sale 
under  the  power.  He  is  not  in  such  case  both  seller  and  buyer. 
When  a  trustee  is  interposed  who  makes  the  sale,  and  who  has  the 
usual  powers  necessary  to  see  that  the  sale  is  fairly  conducted,  he 
is  in  this  respect  the  trustee  of  the  mortgagor,  and  must  be  sup- 
posed to  have  been  selected  by  him  for  the  exercise  of  this  power. 
The  cestui  que  trust  is  at  liberty  to  bid,  subject  to  the  rules  of 
fairness,  which  are  the  more  rigid  in  proportion  as  the  relation  he 
bears  to  the  mortgagor  is  the  more  confidential ;  for,  if  he  could 
not  bid,  he  would  be  deprived  of  the  only  means  which  his  con- 
tract gave  him  of  making  his  claim  out  of  the  security.2 

It  is  not  illegal  for  a  director  of  a  company  to  buy  its  securi- 
ties directly  of  the  company  at  a  discount,  provided  he  pays  the 
same  price  at  which  they  are  issued  to  other  persons ;  and  there- 
fore he  is  not  liable  to  the  company  for  the  difference  between 
the  price  paid  and  par.  Such  u  purchase  does  not  fall  within  the 
principle  of  equity  which  prohibits  an  agent,  or  director,  or  any 
person  in  a  fiduciary  character,  and  having  power  and  iulluence 
in  a  company,  from  making  a  profit  by  his  dealings  with  it.3 

i  Twin-Lick  Oil  Co.  v.  Murhury,  01  U.  8  Compare  Gcntfrnle  dc  Bellegarde  in 
S.  587.  re,  L.  E.  4  Ch.  I).  470. 

2  Twin-Lick  Oil  Co.  p.  Marbuiy,  snjira. 

627 


§  645.]       FORECLOSURE   SALES   UNDER    CORPORATE   MORTGAGES. 

645.  A  sale  by  a  bondholder  in  fraud  of  other  bondholders 
•will  be  set  aside.  —  One  holder  of  a  few  bonds  out  of  a  large 
amount  issued  by  a  corporation,  and  secured  by  a  mortgage  of  its 
property,  has  no  right  to  use  the  mortgage  as  an  instrument  by 
which  he  may  become  the  owner  of  the  mortgaged  property  at  a 
grossly  inadequate  price,  leaving  the  other  bonds  unpaid.  It  is 
his  duty,  if  he  makes  use  of  the  mortgage  security  at  all,  to  make 
it  productive  of  the  most  that  can  be  obtained  for  all  who  are  in- 
terested in  it.  Community  of  interest  between  the  bondholders 
having  a  common  interest  in  the  same  security  involves  mutual 
obligations.  If  one  of  them  seeks  to  appropriate  the  security  ex- 
clusively to  himself,  or  to  make  a  profit  out  of  it  at  the  expense 
of  those  whose  rights  in  it  are  the  same  as  his  own,  he  is  guilty 
of  fraud. 

These  principles  are  illustrated  in  a  case  which  came  before 
the  Supreme  Court  of  the  United  States  from  Louisiana.1  The 
Vicksburg,  Shreveport,  and  Texas  Railroad  Company,  in  1857, 
issued  bonds  to  the  amount  of  $5761,000,  and  secured  them  by  a 
mortgage  upon  its  railroad  and  franchises  and  personal  property, 
together  with  more  than  four  hundred  thousand  acres  of  land. 
On  the  23d  of  December,  1865,  the  holder  of  four  of  the  mort- 
gage bonds,  upon  which  coupons  to  the  amount  of  $720  were  due 
and  unpaid,  obtained  from  a  judge  of  a  court  of  the  State  of 
Louisiana,  at  chambers,  an  ex  parte  order  of  sale.  His  petition 
did  not  disclose  the  name  of  any  other  bondholder ;  and  no  notice 
to  the  other  bondholders,  the  most  of  whom  resided  in  other 
states,  was  asked  for  or  given.  The  sale  was  fixed  for  the  ear- 
liest possible  day,  the  3d  of  February,  and  the  sheriff  advertised 
the  sale  in  one  newspaper  published  in  the  town  of  Monroe,  and 
by  posting  a  copy  of  the  advertisement  on  the  church  door,  and 
another  at  the  door  of  his  office.     By  a  law  of  the  state  the  prop- 

1  Jackson  v.  Ludeling,  21  Wall.  616.    It  parte.     The  mortgage  being  regarded  as 

does  not  appear  that  the  mortgage  in  this  in  the  nature  of  a  confession  of  judgment, 

case  was  made  to  trustees  for  the  bond-  the  judge  grants  an  execution  as  a  matter 

holders.     The  mortgage,  as  well   as   the  of  course  upon  the  production  of  the  bonds 

proceedings  upon  it,  or  upon  the  bonds,  secured,    and   authentic    evidence  of  the 

show  peculiarities  of  the  law  of  Louisiana  mortgage.     This  process  is  known  under 

different  from  the  common  and  statute  law  their  Civil    Code    as    executory   process. 

of  any  other  state  in  these  respects.    Under  See,  in  this  connection,  New  Orleans  11.  R. 

the  practice  in  Louisiana,  the  proceedings  Co.  u.  Morgan,  10  Wall.  256. 
upon  a  mortgage  may  be  altogether  ex 

628 


SETTING  ASIDE   OF   SALE.  [§  645. 

erty  seized  was  required  to  be  appraised,  and  could  not  be  sold  for 
less  than  two  thirds  of  its  appraised  value.  It  consisted  of  a  rail- 
road about  one  hundred  and  ninety  miles  in  length,  with  numer- 
ous stations,  buildings,  warehouses,  depots,  and  depot  grounds, 
cars,  locomotive  engines,  wagons,  machinery,  utensils,  bills  re- 
ceivable to  the  amount  of  more  than  $40,000,  unpaid  stock  sub- 
scriptions exceeding  $320,000,  and  a  large  land  grant  of  several 
hundred  thousand  acres,  together  with  the  franchise  of  the  com- 
pany. They  met  for  the  appraisal  of  all  this  property  only  on 
the  day  of  sale.  They  were  appointed  by  the  plaintiff  in  the  suit, 
and  by  the  acting  president  of  the  road,  upon  whom  service  had 
been  made,  both  of  whom  became  purchasers  at  the  sale.  They 
appraised  the  entire  property  at  $75,000,  and  the  sale  proceeded. 
The  sheriff  exacted  an  illegal  and  onerous  condition,  that  the  pur- 
chaser should  pay  cash  to  meet  the  interest  coupons  then  due, 
and  should  give  security  for  the  credit  portion  of  the  bid  which 
covered  the  immature  interest  and  bonds.  The  property  was 
struck  off  for  $550,000,  but  the  bidder  failing  to  pay  at  once 
the  interest  coupons  then  due  and  presented,  the  sheriff  imme- 
diately set  up  the  property  again  in  bulk,  and  sold  for  $50,000 
property  upon  which  had  been  expended  nearly  $2,000,000,  to- 
gether with  a  large  stock  subscription,  a  lai'ge  grant  of  lands,  and 
considerable  movable  property.  It  appeared  that  the  bondholder 
who  instituted  the  proceedings,  and  several  persons  who  became 
the  purchasers  at  the  sale,  had  entered  into  an  agreement  and 
combination  to  divest  the  company  of  its  property  and  obtain  it 
themselves  at  a  sacrifice.  Several  of  them  were  directors  and 
other  officers  of  the  road.  After  the  sale  they  entered  into  pos- 
session of  the  property  and  organized  a  new  corporation.  The 
other  bondholders,  who  resided  principally  in  other  states,  then 
brought  a  bill  in  equity  to  set  aside  the  sale.  The  Supreme  Court 
of  the  United  States,  in  setting  aside  the  sale,  declared  that  the 
property  was  sacrificed  by  means  of  an  unlawful  and  widespread 
combination,  and  that  the  directors  who  were  parties  to  it  were 
guilty  of  an  inexcusable  violation  of  confidence.  The  fraud  and 
trust  were  entirely  outside  the  record.  The  sale  was  conducted 
under  the  forms  of  law.  The  irregularity  of  the  proceeding  was 
in  the  fraudulenl  combination  to  deprive  the  greal  body  of  the 
bondholders  of  their  property  in  the  road  for  the  benefit  <>f  per- 
sons in  whom,  from  their  official  connection  with  the  road,  or  from 

629 


§§  646,  647.]       FORECLOSURE  SALES  UNDER  CORPORATE  MORTGAGES. 

their  community  of  interest,  these  bondholders  had  the  right  to 
rely  for  faithfulness  to  trusts  and  to  common  obligations. 

646.  A  mortgage  trustee  in  possession  cannot  without  ex- 
press authority  become  a  purchaser.  —  Inasmuch  as  a  trustee 
having  the  possession  and  management  of  a  railroad  corporation 
for  the  protection  of  bondholders  is  a  trustee  not  only  for  them, 
but  for  the  corporation  which  made  the  mortgage,  he  cannot  prop- 
erly purchase  the  mortgaged  property  at  a  foreclosure  sale  even 
under  a  subsequent  mortgage  ;  and  if  he  does  so  purchase  the 
property,  the  corporation  may  redeem  it  upon  paying  the  amount 
of  his  bid  with  interest  thereon  ;  and  the  trustee  will  be  required 
to  account  for  the  earnings  of  the  property  while  it  was  in  his 
possession.  In  such  case  the  corporation  is  entitled  to  have  the 
account  stated,  and  a  reasonable  time  allowed  for  redemption  after 
the  balance  has  been  ascertained.1 

647.  The  fact  that  the  purchasers  at  a  foreclosure  sale  of 
the  property  of  a  railroad  company  are  bondholders  and  cred- 
itors of  the  company  who  have  entered  into  an  agreement  to 
make  the  purchase  and  to  reorganize  the  company  does  not  of 
itself  affect  the  validity  of  the  sale,  or  subject  the  property  in  their 
hands  to  any  trusts  in  favor  of  other  creditors.  Such  creditors  of 
the  corporation  are  bond  fide  purchasers,  unless  there  be  some- 
thing else  to  destroy  their  character  as  such.  The  doctrine  recog- 
nized in  Railroad  Co.  v.  Howard?  that  equity  regards  the  prop- 
erty of  a  corporation  as  held  in  trust  for  the  payment  of  the  debts 
of  the  corporation,  and  that  it  may  be  pursued  by  the  creditors 
into  whosesoever  possession  it  may  be  transferred,  unless  it  has 
passed  into  the  hands  of  a  bond  fide  purchaser,  has  no  application 
to  a  case  where  the  purchasers  occupy  no  relation  of  trust  toward 
the  corporation  or  its  other  creditors,  and  are  in  no  respect  incom- 
petent to  purchase  and  hold  the  property  in  their  own  right,  and 
to  agree  among  themselves  as  to  the  disposition  to  be  made  of  it. 
Such  purchasers  occupy  the  position  of  bond  fide  purchasers  when 
there  is  no  fraud  in  their  agreement  to  make  the  purchase  and 
reorganization,  and  the  stockholders  of  the  old  company  derive 

1  Racine  &  Miss.  R.  R.  Co.  v.  Farmers'         2  7  Wall.  392. 
Loan  &  Trust  Co.  49  111.  331 ;  Ashhurst's 
Appeal  60  Pa.  St.  290. 
630 


SETTING   ASIDE   OF   SALE.  [§  648. 

no  benefit  from  it,  and  the  foreclosure  and  the  sale  under  it  are 
regular  and  fair.1 

Neither  is  a  creditor  to  whom  the  old  company  was  under  obli- 
gation to  deliver  additional  bonds,  but  to  whom  they  never  were 
delivered,  for  this  reason  entitled  to  share  in  the  benefits  of  such 
purchase  by  an  association  of  bondholders.  Although  as  between 
the  old  company  and  the  creditor  equity  would  consider  that 
done  which  ought  to  have  been  done,  this  rule  does  not  affect  the 
rights  of  bondholders  who  made  their  agreement  and  purchase  in 
reference  to  what  the  company  had  actually  done,  and  especially 
where  the  creditor  seeking  to  establish  this  equity  against  the 
bondholders  was  himself  as  an  actual  holder  of  some  of  the  bonds 
a  party  to  the  contract.2  Bondholders  who  have  become  parties 
to  a  scheme  for  the  purchase  of  the  mortgaged  road  and  the  forma- 
tion of  a  new  company,  and  have  in  pursuance  thereof  surrendered 
their  bonds  in  exchange  for  stock  and  bonds  of  such  new  associa- 
tion, are  not  in  a  position  to  take  exception  to  the  foreclosure 
sale.3 

648.  Purchasers  of  a  railroad  at  a  foreclosure  sale,  who 
have  conspired  with  the  directors  of  the  road  in  effecting  a 
fraudulent  sale,  will  be  held  as  trustees  for  the  benefit  of  the 
parties  in  interest  to  the  full  value  of  the  property  purchased. 
The  Milwaukee  and  Superior  Railroad  Company  made  its  promis- 
sory notes,  indorsed  by  four  of  its  directors,  for  the  price  of  iron 
furnished  for  the  road,  and  secured  them  by  a  pledge  of  its  bonds 
for  842,000.  Similar  bonds  to  the  amount  of  $280,000,  which 
had  never  been  issued,  were  sealed  up  and  deposited  with  a  firm, 
not  to  be  issued  until  this  debt  for  iron  had  been  paid,  and 
twenty-seven  miles  of  the  road  built.  The  company  having  built 
about  five  miles  of  road  became  insolvent.  Suit  was  thereupon 
brought  upon  the  notes  against  the  directors  who  had  indorsed 
them.  These  directors  then  procured  at  their  own  expense  a  suit 
to  be  commenced  to  foreclose  the  mortgage.  They  also  arranged 
with  certain  persons  to  purchase  this  claim,  under  an  arrangement 
whereby  the  purchaser  should  acquire  the  entire  property  of  the 
road.  \n  furtherance  of  this  plan  the  *2S(),000  of  bonds  were 
delivered,  by  resolution  of  the  board  of  directors,  of  whom   four 

i  Vosc  v.  Cowdrey,  49  N.  Y.  336  ;  and         2  Vosc  v.  Cowdrey,  tupra. 
see  Ashhurst's  Appeal  60  Pa.  St.  290.  3  Crawsliay  v.  Sontter,  6  WaH  739. 

681 


§§  649,  650.]       FORECLOSURE  SALES  UNDER  CORPORATE  MORTGAGES. 

constituted  a  quorum,  to  the  holders  of  the  notes,  as  additional 
security.  These  creditors  had  not  asked  for  further  security,  and 
refused,  at  first,  to  receive  the  bonds,  and  in  fact  did  not  receive 
them  till  they  had  sold  their  claim.  These  bonds,  then  in  the 
hands  of  the  proposed  purchasers  of  the  road,  were  sold  on  short 
notice  at  public  auction,  and  bought  by  themselves  at  a  small 
price  ;  and  after  the  decree  of  foreclosure  they  presented  these 
bonds  before  the  master,  who  allowed  them  as  a  lien  on  the  road. 
They  then  purchased  the  entire  railroad  and  its  property  for 
$20,000,  and  afterwards  stripped  it  of  its  iron  and  all  other  mova- 
ble property,  which  they  sold  and  realized  large  sums  of  money 
for.  Other  creditors  obtained  judgment  against  the  company, 
and  brought  a  bill,  alleging  the  sale  to  be  fraudulent,  and  seeking 
to  reach  the  franchises  and  property.  The  Supreme  Court  of  the 
United  States  held  the  purchasers  to  be  trustees  of  these  creditors 
for  the  value  of  the  property  less  the  sum  actually  paid  for  a  lien 
upon  it,  and  chargeable  with  interest  on  the  difference  from  the 
day  of  sale.  The  scheme  to  acquire  the  property  of  this  corpo- 
ration was  characterized  as  fraudulent  in  its  inception,  and  fraud- 
ulent at  every  step  in  the  progress  of  its  execution.1 

649.  A  foreclosure  sale  will  be  set  aside  as  fraudulent 
where  it  appears  that  the  notice  of  sale  misstated  the  sum 
due  under  the  mortgage,  as  for  instance  by  setting  forth  that  the 
amount  of  the  bonds  secured  was  $2,000,000,  with  $70,000  inter- 
est, when  in  fact  less  than  $200,000  was  outstanding  in  the  hands 
of  bond  fide  holders  for  value,  and  the  remainder  had  either  not 
been  issued  at  all  or  had  been  through  fraud  -  transferred  to  the 
directors  at  merely  nominal  prices.  Such  a  notice  is  calculated 
to  destroy  all  competition  among  bidders,  and  indeed  to  exclude 
from  the  purchase  every  one  except  those  engaged  in  the  perpe- 
tration of  the  fraud ;  and  where  the  purchase  at  such  sale  is  made 
in  behalf  of  the  bondholders,  who  organize  themselves  into  a  com- 
pany, they  will  be  perpetually  enjoined  from  setting  up  any  right 
or  title  under  it ;  but  the  mortgage  will  remain  as  security  for  the 
bonds  in  the  hands  of  bond  fide  holders  for  value.2 

650.  A  sale  before  default  passes  only  the  mortgage  title.  — 

1  Drury  v.  Cross,  7  Wall.  299.  See  2  Jones  on  Mortgages,  §§  1668-1681, 

2  James  v.  Railroad  Co.  6  Wall.  752.     1906-1922. 

632 


SETTING   ASIDE   OF   SALE.  [§  651. 

Under  a  mortgage  or  deed  of  trust  in  the  usual  form  giving  a 
power  of  sale  upon  a  default  in  payment  of  the  debtor's  interest 
secured,  a  sale  before  such  default  is  not  effectual  in  cutting  off 
the  right  of  redemption.  It  can  confer  nothing  beyond  the  legal 
title  in  trust  for  the  benefit  of  the  grantor.  A  purchaser  is  put 
upon  inquiry  to  ascertain  whether  there  has  been  a  default,  and 
whether  the  default  still  exists  at  the  time  of  the  sale.1 

651.  The  trustee  who  obtained  the  decree  of  sale  should  be 
made  a  party  to  a  suit  in  equity  brought  by  stockholders  of  a 
railroad  company  to  set  aside  as  fraudulent  proceedings  regular 
on  their  face  prosecuted  by  the  trustee  to  foreclose  it,  after  such 
proceedings  have  been  completed.  He  must  be  given  an  oppor- 
tunity to  sustain  his  decree  or  to  rebut  the  alleged  fraud,  and  his 
absence  is  a  fatal  defect.  "The  judgments  of  courts  of  record 
would  be  scarcely  worth  obtaining  if  they  could  be  thus  thrown 
lightly  aside."  2 

It  may  be  necessary  to  make  others  besides  the  plaintiff  in  the 
original  suit  parties  to  the  bill  to  set  aside  the  sale.  Thus  the 
majority  of  the  bondholders  and  stockholders  of  the  Mississippi 
and  Missouri  Railroad  Company  having  agreed  to  sell  the  road 
for  a  stipulated  price,  and  to  divide  the  proceeds  among  all  the 
stockholders  and  creditors  according  to  a  plan  agreed  upon,  and 
other  stockholders  and  bondholders  having  refused  to  agree  to  the 
arrangement,  in  order  to  get  around  their  opposition,  a  sale  was 
effected  through  the  action  of  the  majority,  by  an  amicable  fore- 
closure of  one  of  the  five  mortgages  upon  the  road,  the  trustees  in 
one  of  the  mortgages  being  complainants,  and  those  in  the  other 
mortgages,  with  the  corporation,  being  defendants.  The  dissatis- 
fied stockholders  and  bondholders  then  filed  a  bill  against  the 
purchaser  and  the  corporation  whose  road  had  been  sold,  not 
making,  however,  any  of  the  trustees  or  any  of  the  consenting 
stockholders  parties,  charging  collusion  in  the  sale,  and  praying 
that  it  might  be  set  aside.  This  bill  was  held  by  the  Supreme 
Court  of  the  United  States  fatally  defective  for  want  of  proper 
parties.8  The  proceeds  of  the  sale  had  been  distributed  between 
the  different  sets  of  bondholders  according  to  the  agreement  pre- 

i  Chicago,  Bock  Island  &  Pacific  R.  B.  »  Bibon  v.  Railroad  Companies,  L6 
Co.  v.  Kennedy,  to  111.  350.  Wall.  146 

2  Hurwood  v.  Railroad  Co.  17  Wall.  78. 

633 


§  652.]       FORECLOSURE   SALES   UNDER   CORPORATE   MORTGAGES. 

viously  made  between  them.  Their  rights  would  therefore  be 
affected  by  the  suit  to  set  aside  the  sale.  The  presence  of  the 
trustees  of  all  these  mortgages  was  therefore  indispensable.  To 
a  bill  to  set  aside  a  foreclosure  sale  under  decree  of  court,  the 
plaintiff  in  the  foreclosure  suit  is  a  necessary  party.1 

652.  The  legislature  has  no  power  to  confirm,  a  fraudulent 
sale  of  the  mortgaged  property  of  a  corporation.  Restrictive 
statutes  passed  to  cure  defects  in  conveyances  are  purely  remedial 
in  their  nature,  their  purpose  being  to  correct  mistakes,  in  order 
that  the  intention  of  the  parties  may  be  carried  out ;  and  they  ac- 
complish only  what,  upon  principles  of  natural  justice,  a  Court  of 
Equity  might  decree.  But  such  legislation  cannot  cure  fraud  in 
a  sale.2 

i  Ilanvoodr.  Railroad  Co.  17  Wall.  78.         2  White    Mountains    R.    R.    v.   White 

Mountains  R.  R.  50  N.  H.  50,  57. 

634 


CHAPTER  XXIII. 

EIGHTS   OF  PURCHASERS   AT  FORECLOSURE   SALES   UNDER   RAIL- 
ROAD MORTGAGES. 

I.  Purchasers  are  not  liable  for  the  debts  I  II.  Organization  of  purchasers  into  a  new 
of  the  old  company,  653-660.  corporation,  661-684. 

I.  Purchasers  are  not  liable  for  the  Debts  of  the  Old  Company. 

653.  There  is  no  privity  between  a  new  corporation 
formed  in  accordance  with  statute  authority  by  the  purchasers 
of  a  railroad  upon  foreclosure,  and  the  old  corporation  whose 
property  was  foreclosed ;  and  the  new  company  is  not  liable  for 
the  debts  of  the  old.  Neither  does  the  fact  that  the  stockholders 
of  the  original  company,  by  an  arrangement  subsequent  to  the 
purchase,  were  allowed  to  become  stockholders  of  the  new  com- 
pany without  payment  of  any  money,  impose  upon  the  new  com- 
pany the  debts  of  the  old.1  There  might  be  a  preliminary  agree- 
ment, or  such  an  arrangement  with  the  stockholders  of  the  old 
company,  or  such  admissions  of  liability  as  would  charge  the  new 
company  with  a'  trust  of  the  assets  for  the  creditors  of  the  old 
company.  Such  was  the  case  of  Railroad  Company  v.  Howard? 
where  not  only  was  there  a  preliminary  agreement  to  sell  the 
property  to  a  particular  company,  and  to  make  the  proceeding  to 
foreclose  the  mortgage  ancillary  to  the  agreement,  but  after  the 
property  vested  in  the  purchaser,  the  latter  admitted  the  posses- 
sion of  sixteen  per  cent,  of  the  fund  in  hand  to  belong  to  the 
stockholders  of  the  old  company  ;  and  the  question  being  whether 
the  stockholders  or  the  creditors  of  that  company  should  be  en- 
titled to  this  fund,  it  was,  of  course,  held  that  the  equity  of  the 
creditors  was  superior  to  that  of  the  stockholders. 

Corporate  existence,  and  the  right  to  exercise  tin'  power  of 
eminent  domain,  can  only  be  derived  from  Legislative  enactment ; 

1  Stewart's  Appeal,  72  Pa.  St.  291.  2  7  Well.  392. 

685 


§  654.]       RIGHTS    OF   PURCHASERS   AT    FORECLOSURE   SALES. 

and  before  a  company  can  demand  a  judgment  condemning  lands 
to  its  use,  it  must  show  that  both  have  been  conferred  upon  it  by 
a  valid  law,  and  that  it  has  substantially  complied  with  the  con- 
ditions which  the  law  has  annexed  to  the  exercise  of  the  power. 
The  purchasers  of  a  railroad  upon  a  foreclosure  sale,  in  the  ab- 
sence of  a  statute  conferring  upon  them  corporate  powers,  are  not 
invested  with  any  corporate  capacity  whatever.  The  foreclosure 
sale  does  not  itself  pass  the  franchise  to  be  a  corporation.1 

654.  Purchasers  of  a  railroad  under  a  mortgage  or  execu- 
tion sale  are  not  regarded  as  continuing  the  old  corporation.2 
The  effect  of  legislation  empowering  the  mortgage  trustees  and 
the  bondholders,  together  with  their  associates,  to  purchase  at  a 
foreclosure  sale  the  franchise  and  property  of  the  old  company, 
and  investing  them  with  all  the  corporate  powers  and  privileges 
of  the  old  company,  but  not  giving  the  stockholders  under  the 
old  any  rights  in  the  new  company,  is  to  create  a  new  and  dis- 
tinct corporation,  capable  of  owning  and  using  that  which  is  con- 
veyed under  the  sale,  and  not  to  reorganize  the  old  company. 
Such  new  company  takes  what  it  purchases,  subject  to  no  liens 
or  claims  save  such  as  may  be  paramount  to  the  mortgage  under 
which  the  sale  is  made.3 

The  corporation,  as  a  legal  entity,  does  not  vest  in  the  pur- 
chasers upon  a  sale  under  a  mortgage,  or  by  an  assignee  in  bank- 
ruptcy, nor  do  they  become  corporators  or  stockholders  in  the 
corporation,4  but  by  virtue  of  a  statute  the  purchasers  may  im- 
mediately become  a  body  corporate,  with  all  the  rights  and  privi- 
leges of  the  old  corporation.  The  statutory  directions  in  regard 
to  the  organization  of  the  new  corporation  may  not  be  conditions 
of  its  being ;  and  irregularities  in  the  organization  are  not  neces- 
sarily fatal  to  the  being  of  the  corporation  under  such  a  statute. 

1  Atkinson  v.  Marietta  &  Cincinnati  II.  Ry.  Co.  17  Wis.  497  ;  Smith  v.  Chicago 
R.  Co.  15  Ohio  St.  21  ;  and  see  Menden-  &  North  Western  Ry.  Co.  18  Wis.  17; 
hall  v.  West  Chester  &  Phila.  R.  R.  Co.  Commonwealth  v.  Central  Passenger  Ry. 
36  Pa.  St.    145,  note;    State  v.  Rives,   5  Co.  52  Pa.  St.  506. 

Ired.  (N.  C.)  L.  297;  State  v.  Bank  of  Mel.  3  Morgan   County   v.  Thomas,    76  111. 

6   G.   &  J.    (Md.)    205;    Commonwealth  120. 

v.   Tenth   Mass.    Turnpike    Co.   5    Cush.  *  Metz  v.  Buffalo,  Cony  &  Pittsburg 

(Mass.)  509;  Bruffett  v.    Great  Western  R.  R.  Co.  58  N.   Y.  61  ;    and  see  Wells- 

R.  R.  Co.  25  111.  353.  borough  &  Tioga  Plank  Road  Co.  v.  Grif- 

2  Vilas  v.  Milwaukee  &  Prairie  du  Chien  fin,  57  Pa.  St.  417. 

636 


NOT    LIABLE   FOR   DEBTS    OF    OLD    COMPANY.  [§  655. 

The  organization  is  bat  the  creation  of  an  agency  by  which  the 
corporation  can  act,  and  presupposes  the  existence  of  the  corpo- 
ration.1 

A  subscriber  to  the  stock  of  a  road  reorganized  after  a  foreclos- 
ure sale  of  an  uncompleted  railroad  cannot  avail  himself  of  con- 
ditions in  the  charter  of  the  original  road  for  the  building  of  the 
road  between  certain  terminal  points,  in  order  to  obtain  a  release 
from  his  subscription.  The  new  company  is  under  no  obligation 
to  complete  the  whole  road,  but  may  take  and  use  the  road  in  the 
condition  in  which  it  was  sold.2 

655.  A  new  corporation  formed  by  purchasers  is  not  li- 
able for  the  debts  of  the  old  corporation,  to  whose  property 
and  franchises  it  has  succeeded  by  purchase  and  legislative  au- 
thority, unless  such  debts  have  been  expressly  assumed,  or  the 
new  corporation  is  the  same  corporate  body  as  the  old,  having 
only  a  new  name.  Thus,  the  St.  Paul  and  Pacific  Railroad  Com- 
pany was  sued  upon  coupons  made  by  the  Minnesota  and  Pacific 
Railroad  Company,  under  the  allegation  that  the  latter  com- 
pany not  having  completed  its  road  as  required  by  statute,  the 
name  of  the  corporation  was  changed  to  that  of  the  former  com- 
pany, which  was  really  the  old  corporation  under  a  new  name. 
Judge  Dillon,  after  an  examination  of  the  legislative  and  con- 
stitutional history  of  those  corporations,  was  of  opinion  that  it 
was  not  the  legislative  intention  to  continue  the  old  corporation, 
but  to  create  a  new  corporation,  and  to  give  it  the  property  and 
franchises  of  the  old  corporation,  so  far  as  they  were  held  by  the 
state.3 

A  new  company  organized  by  the  purchasers  of  a  railroad  upon 
foreclosure  sale  is  not  liable  for  the  debts  of  the  old  company, 
though  by  statute  the  new  company  is  clothed  with  the  same 
powers  as  the  old  company.4  The  fact  that  the  sale  took  place  in 
pursuance  of  an  agreement  between  the  old  company,  which  made 

1  Commonwealth  v.  Central  Passenger  North  Hudson  County  R.  R.  Co.  v.  Boor- 

Py.  52  Pa.  St.  50G.  acm,  2s  N.  J.  Eq.  150. 

'-'  Chartiers  Ry.  Co.  v.  Hodgens,  85  Pa.  4  Gil  man  v.  Sheboygan  &  Fond  da  Lac 

St.  .Vil.  P.  P.  Co.  :(7  Wis.  ;si7,  319  ;   Vilas  v.  Mil- 

■  Hopkins  v.  St.  Paul  &  Pacific  It.  P.  wankee  &  Prairie  do  Chien   Ry.  Co.  17 

Co.  2  Dill.  396 ;  and  see  Secombe  p.  Mil-  Wis.   197;    Wright   v.   Milwaukee  &   St. 

wankee  &    St.   Paul    Ry.   Co.   lb.  469;  Paul  Ry.  Co.  25  Wis.  46. 

637 


§  655.]        EIGHTS    OF   PURCHASERS    AT    FORECLOSURE    SALES. 

the  mortgage,  its  bondholders  and  the  mortgage  trustees,  that  a 
foreclosure  sale  should  take  place,  and  that  the  stockholders  of 
the  old  company,  and  its  unsecured  creditors,  should  become 
stockholders  in  the  new  company,  does  not  show  that  the  new 
company  formed  by  the  purchasers  is  merely  a  reorganization  of 
the  old  company,  and  does  not  enable  a  creditor  of  the  old  com- 
pany to  assert  his  claim  against  the  new  except  in  pursuance  of 
some  agreement.1 

There  is  no  doubt  that  an  agreement  for  reorganization  might 
be  made  which  would  modify  the  effect  which  a  foreclosure  sale 
would  otherwise  have.  But  the  natural  effect  of  a  foreclosure  sale 
is  not  neutralized  by  facts  which  show  merely  an  agreement  for 
the  formation  of  a  new  company,  in  which  those  interested  in  the 
old  might  become  interested  in  a  certain  way.2 

The  effect  of  a  sale  of  the  property  and  franchises  of  a  railroad 
company  is  not  different  from  that  of  a  sale  under  an  ordinary 
mortgage.  The  purchaser  does  not  thereby  become  liable  to  pay 
any  of  the  debts  of  the  mortgagor,  though,  if  a  prior  lien  exists 
upon  the  property,  it  may  of  course  be  enforced.  It  does  not 
matter  that  the  debt  is  a  judgment  for  damages  for  land  taken 
by  the  railroad  company  for  its  roadway,  and  that  the  purchasers 
at  the  foreclosure  sale  bought  with  notice  of  such  outstanding 
judgment.  The  fact  that  the  purchaser  is  operating  the  road 
across  the  lands  of  the  plaintiff  does  not  alter  the  case,  so  far  as 
this  question  of  liabilit}'  upon  the  judgment  is  concerned.  The 
plaintiff  may  have  a  remedy  in  another  form  of  action,  to  compel 
the  company  to  make  compensation  for  his  property,  or  stop 
running  its  cars  over  it.  A  Court  of  Equity  would  doubtless 
afford  such  remedy  in  a  case  where  it  appeared  the  new  company 
elected  to  adopt  the  original  taking,  and  continued  to  occupy 
and  use  the  land  for  the  purposes  of  its  road  ;  for  the  right  of  the 
original  owner  to  compensation  for  his  property  is  paramount, 
and  it  is  idle  to  say  that  an  unsatisfied  judgment  against  an 
insolvent  corporation  afforded  him  any  compensation.  But  the 
ground  of  liability  of  the  new  company  is  not  upon  the  judgment 
against  the  old  corporation,  but  is  founded  upon  the  principle  that 

1  Smith  v.  Chicago  &  North  Western        2  Smith  v.  Chicago  &  North  Western 
Ry.  Co.  18  Wis.  17  ;  Sullivan  v.  Portland     Ry.  Co.  supra. 
&  Kennehec  R.  R.  Co.  94  U  S.  806. 
638 


NOT   LIABLE   FOR   DEBTS    OF   OLD    COMPANY.       [§§  656,  657. 

it  has  seen  fit  to  adopt  and  ratify  the  original  taking,  and  there- 
fore is  bound  to  make  compensation.1 

656.  Damages  resulting  from  the  negligence  of  those  oper- 
ating a  road  intermediate  the  time  the  property  of  a  railroad 
company  is  sold,  and  the  confirmation  of  the  sale  by  the  court, 
are  not  chargeable  to  the  purchasers,  unless  they  have  taken  actual 
possession  of  the  property.  Before  the  confirmation  of  the  sale 
and  conveyance  of  the  property,  the  purchasers  have  no  right  to 
intermeddle  with  the  road  or  any  of  the  property  purchased.  If 
they  do  not  in  fact  assume  the  control  of  the  employees  and  ser- 
vants of  the  road,  they  are  not  responsible  for  their  negligence.2 
But  after  the  sale  has  been  completed,  the  purchaser  is  responsi- 
ble for  injuries  resulting  from  the  operation  of  the  road,  and  the 
former  company  is  no  longer  liable,  for  its  power  over  the  prop- 
erty has  ceased,  and  with  its  power  has  also  ceased  its  liability 
for  the  proper  management  of  the  road.  If  the  purchaser  does 
not  become  a  corporation,  but  operates  the  road  as  an  individ- 
ual in  his  own  name  or  as  the  former  company,  he  cannot  be  sued 
in  the  name  of  that  company,  but  the  suit  should  be  in  his  own 
name.3 

657.  Condition  precedent  imposed  by  statute  that  new- 
corporation  shall  assume  debt  of  old.  — When  the  purchasers  of 
a  railroad  are  incorporated  under  a  special  act  which  provides  as  a 
condition  precedent  to  its  operation  that  the  new  company  shall 
pay  all  claims  against  the  old  corporation  for  work  done  and  ma- 
terials furnished,  the  new  company,  when  it  has  accepted  the  act 
and  succeeded  to  the  franchises  of  the  old  company,  is  liable  for 
all  such  claims.  The  acceptance  of  the  act  amounts  to  an  assump- 
tion of  payment  of  all  claims  provided  for  in  the  condition.  It  is 
not  necessary  that  the  act  should  provide  a  specific  remedy  in 
favor  of  the  creditors,  whose  claims  the  company  is  made  Liable 
for,  because  whenever  a  statute  imposes  a  duty  or  liability,  the 
common  law  affords  the  remedy,  either  by  an  action  of  debt  when 
tin;  demand  is  for  a  sum  certain,  as  in  the  case  of  a  judgment,  or 

1  Oilman  >\  Sheboygan  &  Fond  du  Lac  2  Metz  v.  Bull'alo,  Corry  &  Pittsburg 
It.   It.   Co.  :s7   Wis.  ;U7.    The   case  of    R.  B*.  Co.  58  N.  Y.  61. 

Fleifur  v.  Sheboygan  &    Fond  du    Lac    It.  3   WelUborOUgh    &   Tioga    Flank    Head 

II.  Co.  18  Wis.   1.05,  is  distinguished,   but     Co.  v.  Griffin,  47  Fa.  St.  417. 


so  far  as  it  conflicts  is  overruled. 


639 


§§  658,  659.]       RIGHTS    OF   PURCHASERS   AT    FORECLOSURE    SALES. 

otherwise  by  an  action  of  assumpsit.1  If  the  claim  be  in  the  form 
of  a  judgment  against  the  old  company,  it  is  not  necessary  in  an 
action  upon  it  to  aver  that  the  judgment  was  well  founded  ;  for 
the  presumption  is  that  the  judgment  is  correct. 

A  statute  making  a  consolidated  corporation  liable  for  all  debts 
of  each  company  entering  into  the  arrangement  is  not  retrospec- 
tive in  its  operation,  but  is  designed  to  apply  only  to  companies 
consolidated  after  its  passage.2 

658.  To  prove  a  new  promise  by  the  purchasers  of  a  rail- 
road and  its  franchises  to  pay  a  debt  owing  the  original  com- 
pany, there  must  be  shown  some  action  on  the  part  of  the  direc- 
tors from  which  a  promise  can  be  clearly  inferred.  An  agreement 
to  issue  stock  to  the  creditors  of  the  former  corporation  in  case  a 
reorganization  should  be  effected  does  not  give  rise  to  any  claim 
on  their  part  to  payment  in  money  ;  and  a  certificate  by  the  sec- 
retary of  the  company  that  a  certain  amount  was  due  a  creditor 
of  the  old  company  would  be  insufficient  to  bind  the  new  com- 
pany, unless  he  had  been  empowered  to  adjust  the  claim.3 

659.  Debts  incurred  by  a  corporation  cannot  be  released 
by  legislative  enactment,  whether  they  be  debts  incurred  by 
contract,  forfeiture,  or  penalty.  A  repeal  of  the  charter  of  the 
corporation  and  a  transfer  of  its  power  to  a  different  body  can- 
not have  this  effect.  The  creditors  of  the  corporation  have  still 
an  undoubted  right  to  enforce  their  claims.  To  release  a  cor- 
poration from  its  liabilities  by  legislative  enactment  would  be  to 
impair  the  obligation  of  contracts  existing  between  it  and  its 
creditors  ;  and  this  is  a  prohibited  power.  Moreover  the  charter 
of  a  company  is  a  contract  with  which  the  legislature  cannot  in- 
terfere without  consent.  A  sale  of  its  property  does  not  disorgan- 
ize it.  It  still  continues  a  corporation  so  far  as  its  creditors  are 
concerned.  Neither  can  the  legislature  transfer  the  indebtedness 
of  one  corporation  to  another  without  the  action  of  these  bodies ; 
and  even  then  the  corporation  that  incurred  the  indebtedness  is 
not  released  without  the  consent  of  its  creditors.4 

i  St.  Louis,  Alton  &  Terre  Haute  E.  R.  3  Am.  Cent.  Ry.  Co.  v.  Miles,  52  111. 

Co.  v.  Miller,  43  111.  199.  174. 

2  Hatcher  v.  Toledo,  Wabash  &  "West-  i  Bruffett  v.  Great  Western  R.  R.  Co. 

ern  R.  R.  Co.  62  111.  477.  25  111.  353  ;    Hatcher  v.  Toledo,  Wabash 


640 


&  Western  R.  R.  Co.  62  111.  477. 


NOT   LIABLE   FOR   DEBTS    OF   OLD    COMPANY.  [§  660. 

660.  A  purchaser  at  a  foreclosure  sale  of  the  franchises, 
property,  and  irnrnunities  of  a  railroad  conipany  acquires  a 
right  of  exemption  from  taxation  which  appertained  to  the  cor- 
poration by  its  charter.  The  charter  of  a  corporation,  when  ac- 
cepted, becomes  a  contract  which  cannot  afterwards  be  impaired 
by  legislative  action  unless  the  power  to  change  the  charter  is 
reserved.  The  immunity  from  taxation  is  an  important  element 
of  the  value  of  the  corporate  property  and  of  the  security.  A 
sale  of  the  franchises  and  property  of  the  corporation  without  the 
exemption  would  practically  repeal  the  exemption,  and  restore  to 
the  state  the  right  of  taxation,  which  it  did  not  have  so  long  as 
the  old  company  continued  to  be  the  owner  of  the  property.  If 
this  exemption  from  taxation  be  regarded  as  a  right  appurtenant 
to  the  corporation  to  which  it  is  granted,  then  the  right  will  pass 
to  a  purchaser  under  a  description  of  its  franchises  and  property.1 
Yet  the  Supreme  Court  of  the  United  States  has  held  that  immu- 
nity from  taxation  is  not  itself  a  franchise  of  a  railroad  corpo- 
ration which  passes  as  such,  without  other  description,  to  a  pur- 
chaser of  its  property.2  The  exemption  in  this  case  was  of  the 
capital  stock,  works,  workshops,  warehouses,  vehicles  of  transpor- 
tation, and  other  appurtenances  of  the  company.  It  is  certainly 
clear,  as  stated  in  that  case,  that  a  purchaser  of  an  engine  or 
car  from  the  company  would  not  hold  such  property  exempt  from 
taxation.  The  case  is  to  be  distinguished  from  one  where  the 
entire  road,  franchises,  and  property  of  a  railroad  are  exempted 
from  taxation,  and  all  its  rights,  property,  and  appurtenances  are 
sold  as  a  whole.  The  purchaser  in  such  case  acquires  the  right 
to  use  the  property  as  the  old  company  had  the  right  to  use  it. 
Especially  must  this  be  the  case  when  the  sale  is  made  under  a 
statute  expressly  conferring  on  the  purchaser  the  rights,  privi- 
leges, and  immunities  of  the  corporation  sold.  Thus,  the  Knox- 
ville  and  Ohio  Railroad  Company,  whose  charter  contained  an 
exemption  from  taxation,  borrowed  money  from  the  State  of  Ten- 
nessee under  its  Internal  Improvement  Act,  and  a  default  having 
occurred,  a  statute  was  enacted  vesting  the  Chancery  Court  at 
Nashville  with  jurisdiction  of  a  suit  to  foreclose  and  enforce  lie 
state's  lien,  and  to  declare  the  amount  of  the.  company's  indebted- 

1  St.  Paul  &  Pacific  R.  It.  ('<>.  ».  kee  &  St.  Paul  Ry.  Co.  v.  Pfaender,  23 
Parcher,  u  Minn.  297  ;  Chicago,  Milwau-     Minn.  217. 

-  Morgan  v.  Louisiana,  93  (J.  S  217. 

41  .ill 


§  661.]        RIGHTS    OF    PURCHASERS   AT    FORECLOSURE   SALES. 

ness,  and  define  the  rights,  duties,  and  liabilities  of  a  purchaser  of 
the  state's  interest  in  the  road.  This  court  decreed  a  sale  of  the 
property  and  franchises  of  the  company,  and  that  the  sale  should 
vest  the  purchaser  with  all  the  rights,  privileges,  and  immunities 
appertaining  to  the  franchises  of  the  charter.  The  sale  was 
made  on  the  faith  of  the  decree,  and  the  Supreme  Court  of  the 
state  1  held  that  the  validity  of  the  adjudication  could  not  be  ques- 
tioned ;  that  the  exemption  from  taxation  was  a  right  for  which 
a  consideration  had  been  given,  and  the  exemption  attached  to  the 
property;  and  moreover  that  even  if  a  new  grant  of  immunity 
to  the  purchaser  be  regarded  as  necessary,  the  act  of  the  legisla- 
ture and  the  decree  would  probably  be  equivalent  to  such  a  grant.2 
Where,  however,  a  railroad  chartered  by  the  State  of  Missouri 
having  a  like  exemption  was  foreclosed  and  sold  to  satisfy  a  statu- 
tory mortgage  to  the  state,  and  was  purchased  by  the  state,  the  ex- 
emption was  of  course  merged,  because  the  exemption  from  the 
right  of  the  state  to  tax  the  property  would  mean  nothing  when 
the  state  itself  became  the  owner  of  the  property.  Therefore 
when  the  state  came  to  sell  the  road  again,  it  could  sell  it  with  or 
without  the  right  of  redemption  without  injustice  to  any  one. 
Before  the  resale,  the  new  Constitution  of  the  state  had  forbidden 
the  grant  of  any  exemption  from  taxation  ;  and  it  was  held  that 
the  legislature  could  not  authorize  a  sale  with  the  exemption.3 

II.    Organization  of  Purchasers  into  a  New  Corporation. 

661.  Whether  individual  purchasers  can  manage  the  prop- 
erty as  individuals.  —  When  a  corporation  is  expressly  author- 
ized to  mortgage  its  franchise  and  corporate  property  upon  a  fore- 
closure of  such  mortgage,  the  franchise  and  property  of  the  first 
corporation  would  pass  into  the  possession  and  management  of 
the  mortgagee  or  of  the  purchaser  subject  to  the  like  legislative 
control  as  the  first;  but  whether  an  individual  acquiring  such 
property  through  a  foreclosure  could  hold  and  manage  it  as  an  in- 
dividual, or  whether  it  would  be  necessary  to  form  a  corporation 
with  the  powers  and  duties  of  the  original  corporation,  would  de- 
pend upon  the  terms  of  the  statute  authorizing  such  mortgage,  or 

1  Knoxville  &  Ohio  R.  R.  Co.  v.  Hicks,  Northampton  Co.  42  Conn.  103  ;  At- 
Sept.  Term,  1877,  15  Am.  Railw.  R.  197;  lantic  &  Gulf  R.  R.  Co.  v.  Allen,  15  Fla. 
1  Tenn.  Leg.  Reporter,  338.  637. 

2  See,  also,  Nichols  v.  New  Haven   &  8  Trask  v.  Maguire,  18  Wall.  391. 

642 


ORGANIZATION   INTO   NEW   CORPORATION.  [§  6G2. 

upon  the  general  laws  and  policy  of  the  state  in  relation  to  this 
matter.1  Aside,  however,  from  statutes  authorizing  or  requiring 
the  purchasers  to  organize  themselves  into  a  corporation  for  the 
purpose  of  enjoying  the  property,  it  would  seem  in  general  that 
public  policy  would  require  an  organization  into  a  corporation. 
The  laws  granting  the  privilege  of  operating  railroads,  and  regu- 
lating the  management  of  them,  are  framed  solely  with  reference 
to  corporate  bodies.  Moreover,  it  is  the  universal  custom  to  man- 
age all  such  enterprises  through  the  instrumentality  of  a  corporate 
organization  ;  and  such  an  organization  is  so  advantageous  to  the 
owners  that  there  is  no  wish  or  attempt  to  manage  them  in  any 
other  manner.  Where  there  are  no  general  statutes  authorizing 
purchasers  to  form  a  corporation  for  the  purpose  of  using  the 
property,  they  always  obtain  a  special  act  of  incorporation.  At 
the  present  time,  however,  there  are  statutes  in  many  of  the  states 
framed  for  the  special  purpose  of  enabling  purchasers  of  railroads 
at  foreclosure  and  execution  sales  to  become  a  corporation  im- 
mediately upon  obtaining  possession  of  the  property,  without  any 
uncertain  interval  before  such  organization  can  be  obtained  under 
special  acts.  A  statement  of  the  more  important  provisions  of 
these  statutes  is  given  in  the  following  sections  of  this  chapter. 

662.  Alabama.'2  —  Mortgagees  or  others  who  may  be  or  be- 
come purchasers  of  any  railroad  in  this  state  under  any  judicial 
or  other  sale  may  reorganize  the  property  so  purchased  in  the 
manner  provided  for  the  incorporation  of  railroad  companies  ;  and 
within  sixty  days  after  its  organization,  such  body  corporate  must 
file  a  certificate  thereof,  by  its  proper  officers,  in  the  office  of  the 
secretary  of  state.  Purchasers  are  defined  to  be  the  persons  who 
part  with  the  actual  consideration,  or  for  whose  benefit  the  pur- 
chase is  made.  In  each  and  every  case  in  which  any  railroad  may 
be  sold,  by  the  state  or  by  any  commission,  officer,  or  agent  of  the 
state,  or  under  any  proceedings,  judicial  or  otherwise,  authorized 
bylaw,  the  purchasers  at  any  such  sale  may  constitute  them- 
selves into  a  body  politic  and  corporate,  and  shall  have  and  pos- 
sess all  the  powers  and  franchises  which  belonged  to  the  company 
or  corporation  originally  owning  the  railroad  so  purchased,  in- 
cluding the  power  to  purchase  and  hold  real  estate,  and  the  fran- 

i  See  Richardson  v.  Sibley,  ll  Allen  -  Code  of  1876,  §§  L844,  18-15,  18JC; 
(Mass.),  «'<■"),  G8.  and  sec  §  2053. 


§  663.]        RIGHTS   OF   PURCHASERS   AT    FORECLOSURE    SALES. 

chise  to  be  and  exist  as  a  corporation  under  such  name  as  the 
purchasers  may  select  and  adopt.  The  boards  of  directors  of  such 
new  corporations  have  power  to  issue  bonds,  and  to  lease,  sell,  or 
mortgage  all  or  any  part  of  the  franchises  or  property  of  such 
corporations,  including  the  franchise  to  be  or  exist  as  a  corpora- 
tion, to  any  natural  person,  or  to  any  other  railroad  corporation 
chartered  by  this  state  or  any  other  state  of  this  Union. 

The  word  "  purchasers,"  as  herein  above  used  in  every  instance 
where  the  same  occurs,  is  declared  to  mean  and  comprehend,  not 
merely  the  trustees  making  the  purchase,  but  the  persons  for 
whom,  in  whose  behalf,  for  whose  benefit  or  advantage,  or  in  trust 
for  whom  such  railroad  is  so  purchased,  being  the  persons  who 
part  with  the  actual  consideration  of  such  purchase  ;  and  in  every 
case  a  majority  in  interest  of  such  purchasers  may  organize  such 
corporation  for  the  benefit  of  themselves  and  of  all  other  persons 
having  like  interest  in  such  purchase  desiring  to  unite  therein. 

663.  Arkansas.1  —  The  purchasers  of  any  railroad  created  by 
or  existing  under  the  laws  of  this  state,  whether  such  sale  be 
under  the  decree  or  order  of  any  court  of  competent  jurisdiction, 
or  under  the  provisions  of  any  mortgage  or  deed  of  trust  duly  ex- 
ecuted, shall,  upon  the  confirmation  of  such  sale  or  the  execution 
of  the  deed  or  deeds  purporting  to  convey  the  property  as  sold, 
become  a  new  body  politic  or  corporate  in  fact  and  in  law,  by  the 
name  of  the  aforesaid  corporation,  or  such  other  name  as  they 
may  thereafter  adopt,  and  shall  be  deemed  the  stockholders  of 
the  capital  stock  of  such  body  politic  and  corporate,  and  shall  be- 
come entitled  to  and  vested  with  all  the  corporate  rights,  liberties, 
privileges,  immunities,  powers,  and  franchises  of  and  concerning 
the  said  railroad  so  sold,  not  in  conflict  with  the  provisions  of  the 
Constitution  of  this  state,  as  fully  as  the  same  were  held,  exer- 
cised, and  enjoyed  by  such  corporation  before  such  sale  ;  and  it 
shall  and  may  be  lawful  for  the  said  new  body  politic  and  corpo- 
rate at  any  time  within  one  year  after  such  sale  and  conveyance, 
to  organize  themselves  as  a  corporation,  under  such  name  as  they 
may  vote  to  adopt,  by  electing  a  board  of  directors  of  not  less 
than  five  nor  more  than  thirteen  persons,  and  by  the  election  and 
appointment  of  a  president,  and  such  other  officers  as  may  be 
authorized  or  required  by  law  ;  and  such  board  of  directors  are 

l  Acts  of  1874,  p.  57. 

644 


ORGANIZATION    INTO   NEW   CORPORATION.       [§§  664,  665. 

authorized  to  fix  the  capital  stock  of  such  new  corporation  at  an 
amount  not  exceeding  the  estimated  cost  of  such  railroad  and 
equipments  when  completed,  together  with  such  lands  as  said 
corporation  may  acquire,  and  to  issue  certificates  of  the  capital 
stock  of  such  corporation  and  to  distribute  the  same  ;  also,  when- 
ever deemed  expedient,  to  issue  bonds,  and  to  secure  the  payment 
thereof  by  mortgage  or  deed  of  trust  of  the  property,  lands,  in- 
come, and  franchises  of  said  company.  It  shall  be  the  duty  of 
such  new  corporation,  within  six  months  after  its  said  organiza- 
tion, to  make  a  certificate  thereof  under  the  common  seal,  attested 
by  the  signature  of  its  president,  specifying  the  date  of  such  or- 
ganization, and  the  name  of  its  president  and  directors,  and  cause 
such  certificate  to  be  filed  in  the  office  of  the  secretary  of  state 
at  Little  Rock,  and  there  to  remain  of  record. 

664.  Florida.1  —  In  case  of  a  sale  of  any  railroad  or  canal,  or 
any  part  thereof,  constructed  or  in  course  of  construction  by  any 
railroad  or  canal  company,  by  virtue  of  any  trust  deed,  or  any 
foreclosure  of  any  mortgage  thereon,  the  parties  acquiring  title, 
their  associates,  successors,  or  assigns  shall  have  or  acquire  thereby, 
and  shall  exercise  and  enjoy  thereafter,  the  same  rights,  privileges, 
grants,  franchises,  immunities,  and  advantages  in  or  by  said  trust 
deed  enumerated  and  conveyed  which  belonged  to  and  were  en- 
joyed by  the  company  making  such  deed  or  mortgage  or  contract- 
ing such  debt,  so  far  as  the  same  relate  or  appertain  to  that 
portion  of  said  road  or  canal,  or  the  line  thereof  mentioned  or  de- 
scribed and  conveyed  by  said  mortgage  or  trust  deed  and  no  far- 
ther, as  fully  and  absolutely  in  all  respects  as  the  corporators, 
office  holders,  shareholders,  and  agents  of  such  company  might  or 
could  have  done  had  not  such  sale  or  purchase  taken  place.  Such 
purchasers,  their  associates,  successors,  or  assigns,  may  proceed  to 
organize  anew  by  filing  articles  of  association  and  electing  direc- 
tors, and  may  distribute  and  dispose  of  stock,  and  may  conduct 
their  business  generally;  and  such  purchasers  and  their  associates 
shall  thereupon  be  a  corporation,  with  all  the  powers,  privileges, 
and  franchises  conferred  by,  and  be,  subject  to,  the  provisions  of 
this  act. 

665.  Georgia.2  —  In  case  of  the  sale  of  any  railroad  situated 
>  Laws  of  1874,  pp.  46,  47.  -  Laws  1876,  pp.  11*,  119. 

645 


§  6GQ.~\       EIGHTS    OF   PURCHASERS   AT    FORECLOSURE   SALES. 

wholly  or  partly  within  this  state,  by  virtue  of  an}'  mortgage  or 
deed  of  trust,  whether  under  foreclosure  or  other  judicial  proceed- 
ing, or  pursuant  to  any  power  contained  in  such  mortgage  or  deed 
of  trust,  the  purchasers  thereof  or  their  assigns  may,  together 
with  their  associates  (if  any),  form  a  corporation  for  the  purpose 
of  owning,  possessing,  maintaining,  and  operating  such  railroad, 
or  such  portion  thereof  as  may  be  situated  within  this  state,  by 
filing  in  the  office  of  the  secretary  of  state  a  certificate,  specify- 
ing the  name  and  style  of  such  corporation,  the  number  of  direc- 
tors of  the  same,  the  names  of  its  first  directors,  and  the  period  of 
their  services  not  exceeding  one  year,  the  amount  of  the  capital 
stock  of  such  corporation,  and  the  number  of  shares  into  which  it 
is  to  be  divided  ;  and  the  persons  signing  such  certificate  and 
their  successors  shall  be  a  body  corporate  and  politic  by  the  name 
specified  in  such  certificate,  with  power  to  sue  and  be  sued,  con- 
tract and  be  contracted  with,  and  to  own,  possess,  maintain,  and 
operate  the  railroad  referred  to  in  such  certificate,  and  to  transact 
all  business  connected  with  the  same. 

Such  corporation  shall  possess  all  the  powers,  rights,  immuni- 
ties, privileges,  and  franchises  in  respect  to  such  railroad,  or  the 
part  thereof  included  in  such  certificate,  and  in  respect  to  the  real 
and  personal  property  appertaining  to  the  same,  which  were  pos- 
sessed or  enjoyed  by  the  corporation  which  owned  or  held  such 
railroad  previous  to  such  sale,  under  or  by  virtue  of  its  charter 
and  any  amendments  thereto. 

666.  Indiana.1  —  In  case  of  the  sale  of  any  railroad  and  its 
property  situated  wholly  in  this  state,  or  partly  within  this  state 
and  partly  in  an  adjoining  state,  by  virtue  of  any  mortgage  or 
mortgages,  deed  or  deeds  of  trust,  either  by  foreclosure  or  other 
judicial  proceedings,  or  pursuant  to  any  power  contained  in  such 
mortgage  or  mortgages,  deed  or  deeds  of  trust,  or  by  the  joint  ex- 
ercises of  said  powers  and  authorities,  the  purchaser  or  purchasers 
thereof,  their  survivor  or  survivors,  or  he  or  his,  or  they  or  their 
associates  or  assigns,  may  form  a  corporation  by  filing  in  the  office 
of  the  secretary  of  state  a  certificate  specifying  the  name  and  style 
of  the  corporation,  the  number  of  directors,  the  names  of  the  first 

1  Davis's  Stat.  1870,  p.  395,  ch.  264,  §§     Act  March  5,  1861,  2  G.  &  H.  Stat.  p.  291 ; 
2,  3,   being  Act  March  3,  1865;  same  in     2  R.  S.  1876,  p.  6S0. 
1  R.  S.  1876,  ch.  218,  §§  2,  3,  p.  728.     See 

646 


ORGANIZATION   INTO  NEW   CORPORATION.  [§  667. 

directors,  and  the  period  of  their  service,  not  exceeding  one  year, 
the  amount  of  original  capital,  and  the  number  of  shares  into 
which  said  capital  is  to  be  divided  ;  and  the  persons  signing  said 
certificate  and  their  successors  shall  be  a  body  corporate  and  pol- 
itic, by  the  name  in  said  certificate  specified,  with  power  to  sue 
and  be  sued,  contract  and  be  contracted  with,  and  to  maintain  and 
operate  the  railroad  in  said  certificate  named,  and  transact  all 
business  connected  with  the  same;  and  a  copy  of  such  certificate, 
attested  by  the  signature  of  the  secretary  of  state  or  his  deputy, 
shall,  in  all  courts  and  places,  be  evidence  of  the  due  organization 
and  existence  of  the  said  corporation,  and  of  the  matters  in  said 
certificate  stated.  Such  corporation  shall  possess  all  the  powers, 
rights,  privileges,  immunities*,  and  franchises,  in  respect  to  said 
railroad,  or  the  part  thereof  purchased  as  aforesaid,  and  of  all  the 
real  and  personal  property  appertaining  to  the  same,  which  were 
possessed  and  enjoyed  by  the  corporation  that  owned  or  held  the 
said  railroad  previous  to  such  sale  by  virtue  of  its  charter  and 
amendments  thereto,  and  other  laws  of  this  state,  or  of  any  state 
in  which  any  part  of  said  railroad  is  situate,  not  inconsistent  with 
the  laws  of  this  state,  and  shall  have  power,  at  any  time  after  the 
formation  of  the  corporation  as  aforesaid,  to  assume  any  debts  and 
liabilities  of  the  former  corporation,  and  to  make  such  adjustment 
and  settlements  with  any  stockholder  or  stockholders,  creditor  or 
creditors  of  such  former  corporation,  as  may  be  deemed  expedient, 
and,  for  such  purpose,  to  use  such  portions  of  the  bonds  and  stock 
of  such  corporation  as  may  be  deemed  advisable,  and  in  such 
manner  as  such  corporation  may  deem  proper. 

The  above  provisions  are  declared  to  apply  to  and  embrace  any 
and  all  sales  or  purchases  of  railroads,  their  franchises,  rights,  and 
privileges,  under  judicial  decrees  or  judgments  of  any  of  the  courts" 
of  this  state,  or  of  the  United  States,  at  any  time,  whether  said 
sale  under  such  decrees  or  judgments  may  have  occurred  before  or 
after!  lie  passage  of  said  act.1 

667.  Kansas.2  —  In  case  of  the  sale  of  any  railroad  or  any 
part  thereof,  constructed  or  in  process  of  construction,  made  in 
pursuance  of  the  judgment  of  any  court  of  competent  jurisdiction, 
foreclosing  any  mortgage  or  deed  of  trust,  any  railroad  corpora- 

i  Act  Due.  20,  1805;  l  R.  8. 1876,  p.  '■'  Law  of  1876, ch.  110;  Dassler's Stat. 
782.  1870,  §  4626. 

(117 


§  668.]        RIGHTS    OF   PURCHASERS   AT    FORECLOSURE   SALES. 

tion,  the  person  or  persons  acquiring  title  under  such  sale,  and 
their  associates,  successors,  and  assigns,  have  and  acquire  thereby, 
and  may  thereafter  exercise  and  enjoy,  all  the  rights,  privileges, 
grants,  franchises,  immunities,  and  advantages  in  and  by  such 
mortgage  or  deed  of  trust  conveyed,  which  belonged  to  and  were 
enjoyed  by  the  company  making  such  mortgage  or  deed  of  trust, 
so  far  as  the  same  relate  and  appertain  to  that  portion  of  the  rail- 
road or  line  thereof  mentioned  and  described  in  and  conveyed  by 
said  mortgage  or  deed  of  trust,  and  no  further,  as  fully  and  abso- 
lutely in  all  respects  as  the  corporators,  shareholders,  officers,  and 
agents  of  such  company  might  have  exercised  and  enjoyed  had  no 
such  sale  or  purchase  been  made ;  and  such  purchaser  or  purchas- 
ers, their  associates,  successors,  or  assigns,  may  proceed  to  organ- 
ize anew  and  elect  directors,  distribute  and  dispose  of  stock,  take 
the  same  or  another  name,  and  may  conduct  their  business  gener- 
ally under  and  in  the  manner  provided  in  the  charter  under  such 
original  company,  or  in  the  laws  relating  thereto,  with  such  vari- 
ations in  manner  and  form  of  organization  as  their  altered  circum- 
stances may  seem  to  require.  But  no  greater  or  enlarged  powers 
shall  be  exercised  by  the  new  organization  than  are  conferred  by 
the  charter  of  such  original  company.  Such  new  company  is  re- 
quired to  file  in  the  office  of  the  secretary  of  state  a  certificate, 
setting  forth  the  facts  required  by  the  general  statutes  for  the  or- 
ganization of  corporations.  The  new  company  is  subject  to  all 
the  same  obligations  to  the  state  or  the  public  as  the  original  cor- 
poration wras.  Such  reorganization  in  nowise  affects  any  liability 
against  the  old  corporation  existing  at  the  time  of  the  organiza- 
tion of  the  new  company. 

668.  Kentucky.1  —  Whenever  a  railroad  is  sold  under  and  in 
pursuance  of  a  decree  or  judgment  of  a  court  of  equity,  or  other 
court  having  jurisdiction,  the  purchasers  thereof,  or  their  assigns, 
together  with  such  persons  as  may  be  associated  with  them,  shall 
be  authorized  to  become  a  body  politic  and  corporate  for  the  pur- 
pose of  operating  and  completing  said  railroad,  and  shall  be  en- 
titled to  exercise  all  the  franchises,  powers,  rights,  and  privileges, 
and  shall  be  subject  to  all  limitations,  restrictions,  and  liabilities 
contained  in  the  charter  granted  by  the  general  assembly  of  the 
1  Laws  1876,  ch.  319. 

648 


ORGANIZATION   INTO  NEW   CORPORATION.  [§  669. 

commonwealth  under  which  said  railroad  was  constructed  and  op- 
erated as  they  existed  at  the  time  of  such  sale. 

The  mode  by  which  said  purchasers,  or  their  assigns  and  asso- 
ciates, as  above  mentioned,  shall  become  incorporated,  shall  be  as 
prescribed  in  chapter  fifty-six  of  the  General  Statutes.  The  ar- 
ticles of  incorporation  of  any  such  company  may  provide  for  the 
issue,  at  one  or  several  times,  of  any  amount  of  negotiable  bonds, 
with  or  without  coupons,  bearing  a  rate  of  interest,  payable  semi- 
annually, not  exceeding  eight  per  cent,  per  annum,  and  of  paid- 
up  capital  stock ;  said  bonds  and  stock  not  to  exceed,  in  the 
aggregate,  the  original  cost  of  the  construction  of  the  railroad  and 
equipment  purchased,  and  such  sum  as  may  be  necessary  in  order 
to  complete  the  same ;  and  may  provide  for  priorities  in  the  pay- 
ment of  the  interest  or  principal  of  said  bonds,  or  of  dividends 
on  different  classes  of  its  stock,  and  may  regulate  what  right  the 
different  classes  of  stockholders  and  bondholders  may  have  to 
vote  in  corporate  meetings  and  elections,  and  may  exempt  the 
latter  from  responsibility  in  consequence  of  the  exercise  of  such 
right.  The  corporation  thus  created  may  secure  the  payment  of 
any  bonds  issued  by  it,  under  the  authority  conferred  by  this  act, 
by  mortgage  or  deeds  of  trust,  upon  all  or  any  part  of  its  prop- 
erty, rights,  and  franchises  acquired  or  to  be  acquired. 

669.  Maine.1  —  The  foreclosure  of  a  railroad  mortai^e  enures 
to  the  benefit  of  all  the  holders  of  bonds,  coupons,  and  other 
claims  secured  thereby;  and  they,  their  successors  and  assigns,  are 
constituted  a  corporation,  as  of  the  date  of  the  foreclosure,  for 
all  the  purposes,  with  all  the  rights  and  powers,  duties,  and  obli- 
gations of  the  original  corporation  by  its  charter;  and  the  trus- 
tees shall  convey  to  such  new  corporation  by  deeds  all  the  right, 
title,  and  interest  which  they  had  by  the  mortgage  and  the  fore- 
closure thereof,  and  thereupon  they  shall  be  discharged.  It'  they 
neglect  or  refuse  so  to  convey,  the  court,  on  application  in  equity, 
may  compel  them  so  to  do. 

The  new  corporation  may  call  its  fust  meeting  in  the  manner 
provided  for  calling  the  first  meeting  of  the  original  corporation, 
and  use  therefor  the  old  name;  but  at  that  meeting  may  adopt  a 
new  one,  by  which  it  shall  always  after  be  known;  and  it  may 
take  and  hold  the  possession,  and  have   the  use  of   the  mortgaged 

1   Rev.  Stat.  1871.  <h   51,  §§  55, 

649 


§  671.]        EIGHTS   OF    PURCHASERS    AT    FORECLOSURE    SALES. 

property  though  a  bill  in  equity  to  redeem  is  pending,  and  may 
become  a  party  defendant  to  such  bill.  The  new  corporation  may 
vote  to  redeem  a  prior  mortgage,  and  may  make  assessments  on 
the  stockholders  therefor. 

When  the  franchise  of  a  railroad  and  its  road,1  wholly  or  partly 
constructed,  are  sold  by  a  decree  of  the  court,  by  a  power  of 
sale  in  a  mortgage  thereof,  or  on  execution,  the  purchasers  have 
all  the  rights,  powers,  and  obligations  of  the  corporation  under  its 
charter,  and  may  form  a  new  corporation  in  the  manner  herein- 
before provided.  If  the  original  corporation  or  those  claiming 
under  it  have  a  right  to  redeem,  they  may  do  so  in  the  manner 
provided  for  the  redemption  of  mortgaged  real  estate ;  but  shall 
pay,  in  addition  to  the  amount  of  the  sale  and  interest,  the  rea- 
sonable expenditures  made  by  the  new  corporation  in  completing, 
repairing,  and  equipping  said  road,  and  in  the  purchase  of  neces- 
sary property  therefor,  after  deducting  the  net  earnings  thereof. 

The  trustees  of  bondholders,  or  other  parties  under  contract 
with  them,  operating  a  railroad,  and  all  the  corporations  formed 
in  the  modes  hereinbefore  provided,  shall  have  the  same  rights, 
powers,  and  obligations  as  the  old  corporation  had  by  its  charter 
and  the  general  laws ;  and  shall  also  be  subject  to  be  amended, 
altered,  or  repealed  by  the  legislature  and  subject  to  all  the  gen- 
eral laws  concerning  railroads,  notwithstanding  anything  to  the 
contrary  in  the  original  charter. 

The  original  corporation  shall  exist,  after  the  foreclosure  of  the 
mortgage,  for  the  sole  purpose  of  closing  up  its  unsettled  busi- 
ness, and  the  right  of  action  against  it  or  its  stockholders  shall 
not  thereby  be  impaired  ;  but  in  suits  founded  on  any  of  the 
bonds  or  coupons  secured  by  the  mortgage,  the  proportional  act- 
ual value  of  the  property  taken  under  the  mortgage  shall  be  de- 
ducted. 

671.  Michigan.2  —  In  case  of  the  foreclosure  and  sale  of  any 
railroad,  or  part  of  any  railroad,  under  any  trust  deed  or  mort- 
gage given  to  secure  the  payment  of  bonds  sold  to  aid  in  its  con- 
struction and  equipment,  or  for  other  cause  authorized  by  law,  it 
shall  be  competent  and  lawful  for  the  parties  who  may  become 
the  purchasers,  and  others  whom  they  may  associate  with  them- 

1  Rev.  Stat.  1871,  'ch.  51,  §§  67,  68,  69.         2  Laws  1873,  p.  498. 
See  Laws  1878,  ch.  53. 

650 


ORGANIZATION  INTO  NEW  CORPORATION.  [§  G72. 

selves,  to  organize  a  corporation  for  the  management  of  the  same, 
and  issue  stock  in  the  same  in  shares  of  one  hundred  dollars  each, 
to  represent  the  property  in  said  railroad  ;  and  such  corporation, 
when  organized,  shall  have  the  same  rights,  powers,  and  privi- 
leges, as  are  or  may  be  secured  to  the  original  company,  whose 
property  may  have  been  sold  under  and  by  virtue  of  such  mort- 
gage or  trust  deed.  Such  organization  may  be  formed  by  virtue 
of  a  declaration  or  certificate  of  the  purchasers  at  the  sale  under 
said  mortgage  or  trust  deed,  which  shall  set  forth  the  description 
of  the  property  sold,  and  the  date  of  the  deed  under  which  it  was 
sold,  or  of  the  decree  of  the  proper  court,  if  it  shall  have  been 
sold  by  virtue  of  a  decree  of  any  court ;  and  with  such  descrip- 
tion of  the  parties  to  the  deed  or  suit  as  may  identify  the  one  or 
the  other,  or  both ;  the  time  of  the  sale  and  the  name  of  the  offi- 
cer who  sold  the  same  ;  and  also  the  purchasers,  and  the  amount 
paid,  and  the  stockholders  to  whom  stock  is  to  be  issued,- and  the 
amount  of  the  capital  stock  and  the  name  of  the  new  corporation, 
and  such  other  statements  as  may  be  found  requisite  to  make 
definite  the  corporation  whose  property  may  have  been  sold,  and 
the  property  sold,  as  well  as  the  extents  and  rights  and  property 
of  the  new  company ;  which  said  certificate  or  declaration  shall  be 
signed  by  all  of  the  said  purchasers,  and  shall  be  addressed  to  the 
secretary  of  state  ;  and  being  filed  and  recorded  in  his  oflice,  the 
said  corporation  shall  become  complete,  with  all  the  powers  and 
rights  secured  to  railroad  companies  under  this  act,  to  all  the  pro- 
visions of  which,  and  amendments  thereto,  it  shall  be  subject;  and 
a  certified  copy  of  said  certificate  or  declaration  shall  be  primd 
facie  evidence  of  the  due  organization  of  said  company. 

672.  Minnesota.1  —  Upon  the  sale  of  the  franchises  and  prop- 
erty of  any  railroad  corporation  organized  in  this  state  under  any 
mortgage  or  deed  of  trust,  the  purchaser  at  such  sale  shall  become 
invested  with  all  the  rights,  benefits,  privileges,  property,  immu- 
nities, franchises,  and  interests,  so  foreclosed  and  embraced,  <>r  in- 
cluded in  the  said  mortgage  or  trust  deed,  and  in  Baid  sale,  which 
were  held  at  the  time  of  the  execution  of  such  mortgage  or  deed 
of  trust,  or  afterwards  acquired  by  the  company  making  such 
mortgage  or  deed  of  trust,  and  whether  the  said  mortgage  or  deed 
of  trust  and  sale  shall  have  Included  the  corporate  franchises  of 

1  Laws  1876,  ch.  .'30. 

651 


§  672.]        RIGHTS   OF   PURCHASERS   AT   FORECLOSURE   SALES. 

such  company  or  not,  the  said  persons,  for  whose  benefit  such 
purchase  shall  have  been  made  as  aforesaid,  may  organize  as  here- 
inafter provided,  and  from  the  time  of  such  organization  shall  be 
to  all  intents  and  purposes  a  corporation,  with  all  and  singular 
the  corporate  powers,  rights,  franchises,  privileges,  and  immuni- 
ties which  wrere  held  at  the  time  of  the  execution  of  such  mort- 
gage or  deed  of  trust,  or  afterwards  acquired  by  the  company 
making  such  mortgage  or  deed  of  trust,  so  far  as  applicable  to 
the  road  and  property  so  purchased ;  and  in  the  management 
and  operation  of  the  road  or  lines,  as  well  as  in  the  use  and  en- 
joyment of  the  property,  franchises,  and  interests  thus  acquired, 
and  in  the  conduct  of  all  business  growing  out  of  such  purchase, 
shall  be  entitled  to  all  and  singular  the  same  rights,  powers,  priv- 
ileges, immunities,  and  advantages  theretofore  granted  to  or  be- 
stowed upon  the  corporation  making  such  mortgage  or  deed  of 
trust,  which  were  applicable  to  the  road,  property,  and  franchises 
so  purchased  while  held  and  controlled  by  the  last  mentioned  cor- 
poration, and  may  have,  use,  and  exercise  the  same  in  their  corpo- 
rate capacity,  under  and  through  the  organization  herein  provided 
for,  in  like  manner  and  in  all  respects  as  the  corporation  making 
such  mortgage  or  deed  of  trust  might  or  could  have  done,  had  no 
foreclosure  or  sale  taken  place.  The  person  or  persons  so  pur- 
chasing shall,  by  themselves  or  their  authorized  attorneys  or 
proxies,  meet  within  thirty  days  after  the  delivery  of  the  con- 
veyance under  such  sale,  or  certificate  of  sale  delivered,  at  some 
place  within  this  state,  of  which,  and  the  time  of  such  meeting, 
notice  shall  be  published,  by  the  persons  named  as  purchasers  in 
such  deed  or  certificate  of  sale,  by  publication  in  some  of  the  daily 
newspapers  of  St.  Paul,  for  a*  least  ten  days  prior  to  the  time  of 
such  meeting,  at  which  time  and  place  the  said  persons  so  pur- 
chasing shall  adopt  a  corporate  name  for  the  proposed  new  organ- 
ization, and  may  proceed  without  further  notice  and  elect  a  board 
of  not  exceeding  nine  directors,  and  such  board  may  thereupon 
elect  a  president,  secretary,  treasurer,  and  such  other  officers  as 
the  corporation  making  such  mortgage  or  trust  deed  may  there- 
tofore or  prior  to  such  foreclosure  have  been  authorized  to  elect, 
and  adopt  a  corporate  seal.  From  the  time  of  such  election  of 
officers  and  the  adoption  of  a  corporate  seal,  the  organization 
shall  be  deemed  complete,  and  the  company  thus  organized  shall 
become  and  be  a  body  corporate  under  the  name  so  adopted  as 
652 


ORGANIZATION  INTO   NEW   CORPORATION.  [§  673. 

aforesaid  by  the  purchasers  at  the  mortgage  sale,  and  clothed  as 
such,  with  the  rights,  powers,  privileges,  franchises,  immunities, 
and  advantages  herein  above  in  such  case  provided.  It  shall  be 
the  duty  of  such  new  organization,  within  thirty  daj^s  after  such 
organization  shall  be  perfected,  to  make  and  certify  under  its  cor- 
porate seal,  attested  by  its  president  and  secretary,  a  statement 
showing  the  date  of  such  organization,  the  corporate  name  by  it 
adopted,  the  amount  of  its  capital  stock,  issued  and  unissued,  com- 
mon and  preferred,  the  name  of  its  president,  secretary,  treasurer, 
and  other  general  officers,  the  number  and  names  of  its  directors 
so  chosen  at  said  meeting,  and  cause  the  same,  together  with  the 
conveyance  or  certificate  of  sale  made  to  the  purchasers  upon  the 
foreclosure,  to  be  recorded  in  the  office  of  the  secretary  of  state  of 
this  state ;  and  such  record,  or  a  certified  copy  of  such  record  of 
said  proceedings,  shall  be  legal  evidence  of  the  existence  of  such 
corporation  or  organization ;  provided,  however,  that  such  court 
shall  provide  in  such  foreclosure  decree,  or  otherwise,  that  such 
purchaser  or  purchasers  shall  fully  pay  all  sums  due  and  owing 
by  such  defaulting  and  foreclosed  railroad  company  to  any  ser- 
vant or  employee  of  such  company  ;  and  shall  provide  that  such 
purchaser  and  such  new  coi-poration  so  by  them  to  be  formed 
under  the  provisions  of  this  act  shall  complete  all  legal  and  sub- 
sisting contracts  for  sale  of  the  lands  of  such  company,  and  upon 
due  performance  on  the  part  of  any  purchaser  of  such  lands  shall 
convey  the  real  estate  so  purchased  in  pursuance  of  the  contract 
or  contracts  so  subsisting. 

673.  Mississippi.1  —  When  any  railroad  company  chartered 
in  this  state,  and  whose  road  lies  in  whole  or  in  part  in  this  state, 
which  has  mortgaged  its  franchises,  road-bed,  superstructure,  and 
other  property,  shall  afterward  be  sold  for  foreclosure  of  such 
mortgage  by  order  or  decree  of  any  court  of  this  state  or  of  the 
United  States,  having  jurisdiction  thereof,  the  purchasers  at  said 
sale  shall  have  the  same  right  to  operate  Baid  railroad  in  this 
state  as  the  incorporated  company  which  had  executed  said  mort- 
gage, and  said  purchasers  thereof  shall  be  entitled  to  and  be  in- 
vested with  all  the  rights,  privileges,  and  immunities  appertaining 

to  the  property  or  franchises,  <>r  both,  so  sold  in  as  full  and   i i- 

plete  a  manner  as  the  com]. any  was  or  is  by  virtue  of  it-  charter 
1  Laws  1877,  p.  7s,  ch.  16. 

653 


§  674.]        RIGHTS    OF   PURCHASERS    AT    FORECLOSURE   SALES. 

of  incorporation  and  amendments  thereto,  or  by  virtue  of  any- 
other  law  or  laws  of  this  state. 

The  purchasers  of  said  railroad,  its  property,  franchises,  &c, 
aforesaid,  may  fix  the  amount  of  capital  stock  representing  the 
property  bought,  divide  the  same  into  shares  of  one  hundred  dol- 
lars each,  and  the  holders  of  such  stock  may  meet  together,  adopt 
a  name  for  the  company,  and  organize  by  the  election  of  a  board 
of  directors  of  such  number  as  they  may  see  fit,  not  less  than 
three,  one  of  whom  shall  reside  in  this  state  (each  share  of  said 
stock  being  entitled  to  one  vote)  ;  and  said  board  of  directors  may 
elect  a  president  and  such  other  officers  as  they  may  deem  expe- 
dient for  the  proper  management  of  said  property,  fix  their  du- 
ties, terms  of  office  and  compensation,  and  adopt  by-laws  not  in- 
consistent with  the  laws  of  this  state. 

A  statement  signed  by  the  board  of  directors,  showing  the 
name  of  the  corporation,  amount  of  capital  stock,  the  shares  into 
which  the  same  is  divided,  number  and  residence  of  the  board  of 
directors,  where  the  road  is  situated,  the  name  by  which  it  was 
chartered  and  heretofore  known,  shall  be  filed  with  the  secretary 
of  state,  who  certifies  the  fact  of  such  filing,  and  the  company 
is  thereupon  a  body  corporate,  with  all  the  privileges  and  fran- 
chises of  the  former  company.  It  is  made  a  condition  precedent 
to  the  right  of  the  purchasers  to  avail  themselves  of  the  privi- 
leges of  this  act,  that  they  shall  secure  any  indebtedness  of  the 
former  corporation  to  the  state. 

The  provisions  of  the  foregoing  statute  are  extended,1  and 
made  applicable  to  purchasers  of  the  franchise,  road-bed,  and 
other  property  of  any  railroad  company  chartered  in  this  state, 
and  whose  road  lies  in  whole  or  in  part  in  the  state,  at  any  execu- 
tion sale  thereof  under  judgments  recovered  in  this  state. 

674.  New  Jersey.2  —  Whenever  any  railroad  in  this  state,  of 
any  corporation  created  by  or  under  any  law  or  laws  of  this 
state,  shall  be  sold  or  conveyed  under  or  by  virtue  of  any  decree 
or  decrees  of  the  Court  of  Chancery  of  this  state,  or  of  the 
Circuit  Court  of  the  United  States   in  and   for  the  District  of 

1  Laws  1878,  ch.  112.  closure  sale  of  railroads  belonging  to  cora- 

2  Laws  1875,  eh.  429,  §  1 ;  2  Rev.  1877,  panies  existing  under  the  laws  of  another 
p.  944,  §  165.  For  provisions  for  the  for-  state,  but  having  part  of  their  route  in 
mation  of   new   corporations   upon   fore-  this  state,  see  Laws  1876,  ch.  88,  §§  4-10. 

654 


ORGANIZATION   INTO  NEW   CORPORATION.  [§  67-4. 

New  Jersey,  sitting  in  equity,  and  execution  or  executions  issued 
thereon,  to  satisfy  any  mortgage  debt  or  debts,  or  other  incum- 
brances thereon,  and  the  purchaser  or  purchasers  thereof  shall,  in 
the  manner  provided  by  the  statute  in  such  cases  made  and  pro- 
vided, have  formed  a  new  body  politic  and  corporate,  and  shall 
have  made  and  filed  with  the  secretary  of  state  at  Trenton  a  cer- 
tificate of  the  organization  of  such  corporation  ;  and  whenever  the 
new  corporation  so  formed  shall  have  acquired  title  to  the  railroad 
property  and  franchises  aforesaid,  pursuant  to  any  plan  or  agree- 
ment for  the  readjustment  of  the  respective  interests  therein  of  the 
mortgage  creditors,  other  creditors,  and  stockholders  of  the  com- 
panv  theretofore  owning  such  property  and  franchises,  and  for  the 
representation  of  such  interests  of  the  creditors  and  stockholders 
in  the  bonds,  debts,  or  stock  of  the  new  corporation  so  formed, 
then  and  in  such  case  the  said  new  corporation  shall  be  author- 
ized and  have  the  power  to  issue  its  bonds  and  stock  in  con- 
formity with  the  provisions  of  such  plan  or  agreement ;  and  the 
said  new  corporation  may,  at  any  time  within  six  months  after 
its  organization,  compromise,  settle,  or  assume  the  payment  of 
any  debt,  claim,  or  liability  of  the  former  company  upon  such 
terms  as  may  be  approved  by  a  majority  of  the  agents  or  trus- 
tees intrusted  with  the  carrying  out  of  the  plan  or  agreement  of 
reorganization  as  aforesaid ;  and  for  the  purposes  of  such  plans 
and  of  such  settlements,  the  said  new  corporations  may  and  shall 
be  authorized  to  establish  preferences  in  respect  to  the  payment 
of  dividends  in  favor  of  any  portion  of  its  said  capital  stock,  ami 
to  divide  such  stock  into  classes  ;  provided,  nevertheless,  that 
nothing  herein  contained  shall  be  held  to  authorize  the  issue  of 
capital  stock  by  the  said  new  company  to  an  aggregate  amount 
exceeding  the  maximum  amount  of  such  stock  mentioned  in  the, 
certificate  of  incorporation  filed  by  such  new  corporation. 

Whenever  any  railroad,  canal,  turnpike,  bridge,  or  plank  road 
of  any  corporation  created  by  or  under  any  law  of  this  state  shall 
be  sold  and  conveyed,  under  and  by  virtue  of  any  process  or  de- 
cree of  any  court  of  this  state  or  of  the  Qnited  Slates,  or  of  any 
power  or  authority  duly  granted  or  conferred  in  and  by  any  mort- 
gage or  deed  in  the  nature  thereof,  the  person  or  persons  for  or 
on  whose  account  such  railroad,  canal,  turnpike,  or  plank  road 
may  be   purchased  shall   be   constituted  a  body  politic  and  corpo- 


§  674.]        RIGHTS    OF    PURCHASERS    AT    FORECLOSURE    SALES. 

rate,1  and  shall  be  vested  with  all  the  right,  title,  interest,  prop- 
erty, possession,  claim  and  demand,  in  law  and  equity,  of,  in,  and 
to  such  railroad,  canal,  turnpike,  bridge,  or  plank  road,  with  its 
appurtenances,  with  all  the  rights,  powers,  immunities,  privileges, 
and  franchises  of  the  said  corporation  which  may  have  been 
granted  to  it  or  conferred  thereupon  by  statute  or  statutes  in 
force  at  the  time  of  such  sale  and  conveyance,  and  subject  to  all 
the  restrictions  imposed  upon  such  corporation  by  any  such  act  or 
acts,  except  so  far  as  the  same  are  modified  by  this  act;  but  the 
provisions  of  this  act  shall,  notwithstanding  anything  therein  con- 
tained to  the  contrary,  extend  and  apply  to  any  case  in  which  a 
railroad,  canal,  turnpike,  bridge,  or  plank  road,  or  any  corporation 
created  by  or  under  any  law  of  this  state,  has  been  sold  and  con- 
veyed before  the  passage  of  this  act  in  the  manner  hereinbefore 
described. 

The  person  or  persons  for  or  on  whose  account  any  such  rail- 
road, canal,  turnpike,  bridge,  or  plank  road  may  have  been  pur- 
chased, shall  meet  within  thirty  days  after  the  conveyance  made 
by  virtue  of  said  process  or  decree  shall  have  been  delivered,2  at 
the  county  town  of  any  one  of  the  counties  through  which  the  said 
railroad,  canal,  turnpike,  bridge,  or  plank  road  may  run,  public 
notice  of  the  time  and  place  of  such  meeting  having  been  given 
at  least  once  a  week  for  two  weeks,  in  at  least  one  newspaper  pub- 
lished in  each  of  the  counties  in  or  through  which  the  said  rail- 
road, canal,  turnpike,  bridge,  or  plank  road  may  run,  and  organize 
said  new  corporation  by  electing  a  president  and  board  of  six 
directors,  to  continue  in  office  until  the  first  Monday  of  May  suc- 
ceeding such  meeting,  when,  and  annually  thereafter,  on  the  said 
day,  a  like  election  for  a  president  and  six  directors  shall  be  held, 
to  serve  for  one  year.  At  such  meeting  so  held,  the  said  person 
or  persons  shall  adopt  a  corporate  name  and  corporate  seal,  de- 
termine the  amount  of  the  capital  stock  thereof,  and  shall  have 
power  and  authority  to  make  and  issue  certificates  therefor  to  the 
purchaser  or  purchasers  aforesaid,  to  the  amount  of  their  respec- 
tive interests  therein,  in  shares  of  fifty  dollars  each.  The  said 
corporation  may  then,  or  at  any  time  thereafter,  create  and  issue 

1  Laws  1877,  ch.  92;  2    Rev.   1877,  p.  new  corporations,  see  Laws  1876,  ch.  157, 

945,  §  167.     For  statute   authorizing  pur-  §  1  ;  2  Rev.  1877,  p.  923,  §  82. 

chasers  of  turnpike  road  or  steamboat  com-  2  Laws   1875,  ch.  235;  2  Rev.  1877,  p. 

pany's  property  on  execution  to  organize  945,  §§  168-171. 

656 


ORGANIZATION  INTO   NEW   CORPORATION.  [§  675. 

preferred  stock,  to  such  an  amount  and  at  such  times  as  they  may 
deem  necessary,  and  from  time  to  time  issue  bonds  at  a  rate  of 
interest  not  exceeding  seven  per  centum,  to  any  amount  not  ex- 
ceeding their  capital  stock.  It  shall  be  the  duty  of  such  new 
corporation,  within  one  month  after  its  organization,  to  make  a 
certificate  thereof  under  its  common  seal,  attested  by  the  signa- 
ture of  its  president,  specifying  the  date  of  such  organization,  the 
name  so  adopted,  the  amount  of  capital  stock,  and  the  name  of  its 
president  and  directors,  and  transmit  the  said  certificate  to  the 
secretary  of  state  at  Trenton,  to  be  filed  in  his  office,  and  there 
remain  of  record. 

675.  New  York.1  —  In   case    the  railroad  and  property  con- 
nected therewith,  and  the  rights,  privileges,  and  franchises  of  any 
corporation,  except  a  street  railroad  company,  created  under  the 
general  railroad  law  of  this  state,  or  existing  under  any  special  or 
general  act  or  acts  of  the  legislature  thereof,  shall  be  sold  under 
or  pursuant  to  the  judgment  or  decree  of  any  court  of  competent 
jurisdiction  made  or  given  to  execute  the  provisions,  or  enforce 
the  lien  of  any  deed  or  deeds  of  trust,  or  mortgage  theretofore  exe- 
cuted by  any  such  company,  the  purchasers  of  such  railroad  prop- 
erty and  franchises,  and  such  persons  as  they  may  associate  with 
themselves,  their  grantees,  or  assignees,  or  a  majority  of  them, 
may  become  a  body  politic  and  corporate,  and  as  such  may  take, 
hold,  and  possess  the  title  and  property  included  in  said  sale,  and 
shall  have  all  the  franchises,  rights,  powers,  privileges,  and  im- 
munities which  were  possessed  before  such  sale  by  the  corporation 
whose  property  shall  have  been  sold  as  aforesaid,  by  and  upon 
filing    in  the  office  of   the  secretary  of   state  a  certificate,   duly 
executed  under  their  hands  and  seals,  and  acknowledged  by  an 
officer  authorized  to  take  the  acknowledgment  of  deeds,  in  which 
certificate  the  said  persons  shall  describe  by  name,  and  reference 
to  the  act  or  acts  of  the  legislature  of  this  state  under  which  it 
was  organized,  the  corporation  whose  property  and  franchises  they 
shall  have  acquired  as  aforesaid,  and  also  the  court  by  authority 
of  which  such   sale  shall  have  been  made,  giving  the  dale  of   the 
judgment  or  decree  thereof  authorizing  <>r  directing  the  same,  to- 
gether with  a  brief  description  of  the  property  sold,  and  shall  also 

i   Lawa  1870,  ch.  446.     Fur  prior  act,  sec  Laws   1874,  ch.  480 J  '-?  If.  B.  Is7.'.,   p.  553, 
§§111,112. 

42  057 


§  675.]        RIGHTS    OF   PURCHASERS   AT   FORECLOSURE   SALES. 

set  forth  the  following  particulars :  1.  The  name  of  the  new  cor- 
poration intended  to  be  formed  by  the  filing  of  such  certificate. 

2.  The  maximum  amount  of  its  capital  stock,  and  the  number  of 
shares  into  which  the  same  is  to  be  divided,  specifying  how  much 
of  the  same  shall  be  common,  and  how  much  preferred  stock, 
and  the  classes  thereof,  and  the  rights  pertaining  to  each  class. 

3.  The  number  of  directors  by  whom  the  affairs  of  the  said  new 
corporation  are  to  be  managed,  and  the  names  and  residences  of 
the  persons  selected  to  act  as  directors  for  the  first  year  after  its 
organization.  4.  Any  plan  or  agreement  which  may  have  been 
entered  into  pursuant  to  the  second  section  of  this  act. 

And  upon  the  due  execution  of  such  certificate,  and  the  filing 
of  the  same  in  the  office  of  the  secretary  of  state,  the  persons  ex- 
ecuting such  certificate,  and  who  shall  have  acquired  the  title  to 
the  property  and  franchises  sold  as  aforesaid,  their  associates,  suc- 
cessors, and  assigns,  shall  become  and  be  a  body  politic  and  cor- 
porate by  the  name  specified  in  such  certificate,  and  shall  become 
and  be  vested  with,  and  entitled  to  exercise  and  enjoy,  all  the 
rights,  privileges,  and  franchises,  which  at  the  time  of  such  sale 
belonged  to  or  were  vested  in  the  corporation  which  last  owned 
the  property  so  sold,  or  its  receiver,  and  shall  be  subject  to  all  the 
provisions,  duties,  and  liabilities  imposed  by  the  act  to  authorize 
the  formation  of  railroad  corporations  ;  and  a  copy  of  the  said 
certificate,  certified  by  the  secretary  of  state  or  his  deputy,  shall 
be  presumptive  evidence  of  the  due  formation  of  the  new  corpo- 
ration therein  mentioned,  provided  always,  that  a  majority  of  said 
persons  shall  be  citizens  and  residents  of  this  state.  In  the  cer- 
tificate so  to  be  filed  shall  be  inserted  the  whole  of  the  plan  or 
agreement  in  the  next  section  referred  to.  And  such  plan,  agree- 
ment, and  articles  may  regulate  voting  by  and  on  the  part  of  the 
holders  of  the  preferred  and  common  stock  of  said  company,  and 
may  also  allow,  provide  for,  and  regulate  voting  at  and  in  said 
meetings,  and  also  for  directors,  by  and  on  the  part  of  the  holders 
and  owners  of  any  or  all  of  the  bonds  of  the  company  foreclosed, 
or  of  the  bonds  issued  or  to  be  issued,  and  payable  by  the  new 
company,  pursuant  to  any  such  plan,  agreement,  or  articles ;  such 
right  of  voting  by  bondholders  to  be  in  Such  manner,  for  such 
period  or  periods,  and  upon  such  conditions  as  said  articles  may 
authorize  and  declare;  but  such  articles  shall  contain  suitable  pro- 
visions for  voting  by  proxy.  Said  articles  shall  not  be  inconsist- 
658 


ORGANIZATION   INTO   NEW   CORPORATION.  [§  676. 

ent  with  the  Constitution  or  laws  of  this  state,  and  shall  not  be 
binding  upon  the  company  until  changed  as  therein  provided  for, 
or  until  otherwise  provided  by  law. 

In  case  the  persons  organizing,  or  whose  duty  it  may  be  to  or- 
ganize the  new  corporation,  to  be  formed  as  provided  in  the  first 
section  of  this  act,  shall  have  acquired  title  to  the  railroad  prop- 
erty and  franchises  which  may  have  been  sold  as  in  said  section 
mentioned,  pursuant  to  any  plan  or  agreement  for  or  in  anticipa- 
tion of  the  readjustment  of  the  respective  interests  therein  of  the 
mortgage  creditors  and  stockholders  of  the  company  owning,  or 
which  last  owned,  such  property  and  franchises  at  the  time  of  any 
such  sale,  and  for  the  representation  of  such  interests  of  creditors 
ami  stockholders  in  the  bonds  or  stock  of  the  new  corporation,  to 
be  formed  as  provided  for  in  said  section,  the  said  new  corporation 
shall  be  authorized,  and  shall  have  the  power  to  issue  its  bonds 
and  stock  in  conformity  with  the  provisions  of  such  plan  or  agree- 
ment ;  and  the  said  new  corporation  may,  at  any  time  within  six 
months  after  its  organization,  compromise,  settle,  or  assume  the 
payment  of  any  debt,  claim,  or  liability  of  the  former  company, 
upon  such  terms  as  may  be  lawfully  approved  by  a  majority  of 
the  agents  or  trustees  intrusted  with  the  carrying  out  of  the  plan 
or  agreement  of  reorganization  aforesaid. 

Neither  the  sale  nor  the  formation  of  such  corporation  shall  in- 
terfere with  the  authority  or  possession  of  any  receiver  of  the 
property  and  franchises,  but  he  shall  remain  liable  to  be  removed 
or  discharged  at  such  time  as  the  court  may  deem  proper.  No 
suit  or  proceeding  shall  be  commenced  against  said  receiver,  un- 
less founded  on  wilful  misconduct  or  fraud  in  his  trust,  except 
such  as  shall  be  commenced  before  the  expiration  of  sixty  days 
from  the  time  of  the  discharge  of  said  receiver;  but  after  the  ex- 
piration of  said  sixty  days,  the  corporation  that  shall  own  or 
operate  said  railroad  shall  be  liable  in  any  action  that  may  be 
commenced  against  such  company,  founded  on  any  act  or  omis- 
sion of  such  receiver,  and  to  the  same  extent  as  such  receiver,  but 
for  this  provision,  would  be  or  remain  liable,  or  to  the  Bame  ex- 
tent that  such  corporation  would  be,  had  it  done  or  omitted  the 
acts  complained  of  against  such  receiver. 

676.  Ohio.1  —  The  purchaser  or  purchasers  of   the   real   and 

1  Law.,  L869,  p.  334,  §§1,2;  Hauler's  Stat.  p.  2207.    See,  also,  Supplement  to  K.  8. 

659 


§  677.]        RIGHTS    OF    PURCHASERS   AT   FORECLOSURE    SALES. 

personal  property,  road-beds,  rights  of  way,  fixtures,  and  fran- 
chises of  any  railroad  company  in  the  State  of  Ohio  that  shall 
have  been  or  shall  hereafter  be  sold  pursuant  to  judicial  order, 
judgment,  or  decree,  and  which  sale  has  been  confirmed  by  the 
court  making  the  order  of  sale,  may  sell  the  same,  or  any  portion 
thereof  ;  and  the  title  thereto,  with  all  the  rights,  liberties,  faculties, 
and  franchises,  shall  pass  by  such  sale  and  vest  in  the  purchaser 
or  purchasers  thereof  as  fully  as  the  same  had  been  possessed,  ex- 
ercised, and  enjoyed  by  such  railroad  company,  and  which  passed 
by  said  judicial  sale  ;  which  grant,  being  in  the  same  form  as  by 
law  required  to  pass  real  estate,  shall  be  recorded  in  the  record  of 
deeds  of  the  county  or  counties  in  which  said  real  or  personal 
property  is  situated,  and  said  rights  and  franchises  are  or  may  be 
exercised. 

Any  railroad  company  organized  or  existing  under  the  laws  of 
this  state  may  become  the  purchasers  of  such  property ;  and  any 
number  of  persons,  not  less  than  five,  may  become  the  purchasers 
of  such  road,  road-bed,  rights  of  way,  property,  and  franchises, 
and  upon  filing  a  copy  of  said  grant  in  the  office  of  the  secretary 
of  state  shall  become  a  corporation,  with  perpetual  succession,  by 
such  name  as  they  may  assume  for  themselves,  under  the  general 
laws  of  this  state  regulating  corporations,  and  shall  hold  the 
property,  rights,  and  franchises  so  purchased  free  and  discharged 
from  all  liability  from  the  debts  of  the  original  corporation. 

677.  Pennsylvania.1  —  Where  a  mortgage,  executed  by  a 
railroad  company  incorporated  under  the  laws  of  another  state, 
grants  and  conveys  a  railroad,  situated  partly  within  this  and 
partly  within  another  or  other  states,  and  where  the  mortgage  of 
the  railroad  within  this  state  has  been  authorized  or  confirmed  by 
the  laws  of  this  state,  any  corporation  formed  under  the  laws  of 
the  state  within  which  the  corporation  which  last  owned  the  said 
railroad  was  incorporated,  that  shall,  under  the  said  laws,  succeed 
to  or  become  invested  with  the  title  acquired  by  purchasers  or 
mortgagees  of  the  said  railroad,  and  the  franchises  appurtenant 
thereto,  under  any  sale  or  foreclosure  thereof  under  the  said  mort- 

1868,  pp.  125-131;  Acts  April  13,1865;  their  road,  or  purchasing  rolling  stock,  see 

April  7,  1863;  April  11, 1861.   For  statute  Laws  1873,  p.  291,  §  5  ;  Sayler's  Stat.  p. 

authorizing  purchasers  to  issue  bonds  for  3140. 

the  purpose  of  completing  or  extending  x  Laws  1876,  p.  93,  §  1,  No.  57. 

660 


ORGANIZATION   INTO   NEW   CORPORATION.  [§  678. 

gage,  adjudged,  ordered,  or  decreed  by  a  court  of  competent  juris- 
diction of  the  said  last  mentioned  state,  shall  succeed  to  or  become 
invested  with  the  ownership  of  the  said  railroad  within  this  state, 
and  the  franchises  appurtenant  thereto,  and  with  all  other  the 
estate,  real  and  personal,  rights,  privileges,  and  franchises  in  this 
state,  the  title  to  which  of  the  said  purchasers  or  mortgagees  has 
become  vested  in  the  said  corporation  ;  and  said  corporation  shall 
hold  and  enjoy  the  same  free  and  discharged  from  every  incum- 
brance or  charge  thereon  subsequent  in  lien  to  that  of  the  mort- 
gage or  mortgages  under  which  the  said  sale  or  foreclosure  was 
had,  except  where  otherwise  provided  in  the  said  order  or  decree, 
as  fully  and  completely  as  the  same  were  possessed  by  the  com- 
pany as  whose  property  they  were  sold,  and  with  every  power 
relating  to  the  use,  management,  disposition,  sale,  or  mortgage 
thereof,  which  was  held  and  enjoyed  by  the  said  company,  but 
subject,  nevertheless,  to  all  the  provisions  of  the  laws  of  this  com- 
monwealth under  which  the  same  were  held  or  possessed  by  the 
last  named  company,  and  without  any  greater  or  other  estate, 
right,  title,  or  privilege  therein  ;  provided,  however,  that  the  said 
order  or  decree  of  sale  or  foreclosure  shall,  as  to  the  said  railroad 
within  this  state,  franchises  appurtenant  thereto,  and  other  the 
estate,  real  and  personal,  rights,  privileges,  and  franchises  within 
this  state,  included  within  the  said  sale  or  foreclosure,  have  been 
adopted  or  enforced  by  an  order  or  decree,  confirmatory  thereof 
or  ancillary  thereto,  made  by  a  state  or  federal  court  of  competent 
jurisdiction  within  this  state. 

678.  South  Carolina.1  —  In  case  of  the  sale  of  any  railroad, 
situated  wholly  within  this  state  or  partly  within  this  state  and 
partly  in  an  adjoining  state,  by  virtue  of  any  mortgage  <>r  deed 
of  trust,  whether  under  foreclosure  or  other  judicial  proceeding, 
or  pursuant  to  any  power  contained  in  such  mortgage  or  deed  of 
trust,  the  purchaser  or  purchasers  thereof,  or  his  or  their  survivor 
or  Burvivors,  representatives  or  assigns,  may,  together  with  their 
iates,  form  a  corporation  for  the  purpose  of  owning,  possess- 
ing, maintaining,  and  operating  such  railroad,  or  such  portion 
thereof  as  may  lie  situated  within  this  state,  by  filing  in  the  office 
of  the  secretary  of  state  a  certificate  specif)  ing  the  mime  and  slylo 

1  Art-  1876,  page  100.    Fur  provision  allowing  connecting  road  to  pnrcha 
R,  s.  i -:.;,<■.  65,  §  u. 

661 


§  G79.]        EIGHTS   OF   PURCHASERS   AT    FORECLOSURE   SALES. 

of  such  corporation,  the  number  of  directors  of  the  same,  the  name 
of  its  first  directors  and  the  period  of  their  services,  not  exceeding 
one  year,  the  amount  of  the  capital  stock  of  such  corporation,  and 
the  number  of  shares  into  which  it  is  to  be  divided  ;  and  the  per- 
sons signing  such  certificate  and  their  successors  shall  be  a  body 
corporate  and  politic,  by  the  name  specified  in  such  certificate, 
with  power  to  sue  and  be  sued,  contract  and  be  contracted  with, 
and  to  own,  possess,  maintain,  and  operate  the  railroad  referred  to 
in  such  certificate,  and  to  transact  all  business  connected  with  the 
same ;  and  a  copy  of  such  certificate,  attested  by  the  secretary  of 
state  or  his  deputy,  shall,  in  all  courts  and  places,  be  evidences  of 
the  due  organization  and  existence  of  such  corporation  and  of  the 
matters  specified  in  such  certificate. 

Such  corporation  shall  possess  all  the  powers,  rights,  immuni- 
ties, privileges,  and  franchises  in  respect  to  such  railroad,  or  the 
part  thereof  included  in  such  certificate,  and  in  respect  to  the  real 
and  personal  property  appertaining  to  the  same,  which  were  pos- 
sessed or  enjoyed  by  the  corporation  which  owned  or  held  such 
railroad  previous  to  such  sale  under  or  by  virtue  of  its  charter 
and  any  amendments  thereto,  and  of  other  laws  of  this  state  or 
the  laws  of  any  other  state  in  which  any  part  of  such  railroad  may 
have  been  situated,  not  inconsistent  with  the  laws  of  this  state. 
Such  corporation  shall  also  have  power  to  make  and  issue  bonds, 
bearing  such  rate  of  interest,  not  exceeding  seven  per  cent,  per 
annum,  payable  at  such  times  and  places,  and  in  such  amount  or 
amounts,  as  it  may  deem  expedient,  and  to  sell  and  dispose  of  such 
bonds  at  such  prices  and  in  such  manner  as  it  may  deem  proper, 
and  to  secure  the  payment  of  such  bonds  by  its  mortgage  or  deed 
of  trust  of  its  railroad  or  any  part  thereof,  and  its  real  and  per- 
sonal property  and  franchises. 

679.  Tennessee.1  —  The  purchasers  of  any  railroad  chartered 
by  this  state,  and  lying  in  whole  or  in  part  in  this  state,  which  is 
sold  under  any  mortgage  heretofore  or  hereafter  executed  by  it, 
who  shall  be,  under  said  sale,  put  in  possession  of  said  railroad  by 
any  court  of  competent  jurisdiction,  shall  have  the  same  rights  to 
operate  the  same  in  this  state  as  the  incorporated  company  which 
executed  said  mortgage  had  by  the  laws  of  this  state. 

The  purchasers  of  such  railroad,  its  property  and  franchises, 
1  Acts  1877,  ch.  12,  §§  1,  3. 

662 


ORGANIZATION  INTO  NEW   CORPORATION.  [§  680. 

may,  after  being  put  in  possession  of  said  property  under  such 
sale,  meet  together,  adopt  a  name  for  the  company  or  corporation 
to  operate  said  railroad,  and  elect  a  board  of  directors  of  such 
members  as  they  may  see  fit,  not  less  than  three,  at  least  one  of 
whom  shall  reside  in  this  state.  The  said  board  of  directors  shall 
make  a  certificate  showing  the  name  of  the  corporation,  the 
amount  of  its  capital  stock,  the  shares  into  which  the  same  is 
divided,  the  number  and  residence  of  the  board  of  directors, 
where  the  road  lies,  and  the  name  or  names  by  which  it  has  here- 
tofore been  chartered  and  known,  and  shall  cause  the  same  to  be 
signed  by  the  president  and  the  members  of  such  board,  and  to  be 
filed  with  the  secretary  of  state  ;  and  thereupon  the  said  pur- 
chasers shall  be  a  body  corporate,  under  the  name  so  adopted, 
with  all  the  rights,  powers,  privileges,  immunities,  and  franchises 
possessed  under  the  laws  of  this  state  by  the  company  or  com- 
panies whose  road  and  franchises  were  sold  as  aforesaid,  under 
the  acts  of  incorporation  thereof,  any  amendments  thereto,  or 
any  subsequent  act  or  acts  of  this  state,  and  with  all  the  rights, 
powers,  privileges,  and  franchises  possessed  by  the  corporation 
formed  and  organized  for  the  building  of  railroads. 

680.  Texas.1  —  The  road-bed,  track,  franchise,  and  chartered 
powers  and  privileges  of  a  railroad  company  shall  be  deemed  an 
entire  thing,  and  must  be  sold  as  such  ;  and  in  case  of  the  sale  of 
the  same,  whether  by  virtue  of  an  execution,  order  of  sale,  deed 
of  trust,  or  any  other  power,  the  purchaser  or  purchasers  at  such 
sale,  and  their  associates,  shall  be  entitled  to  have  and  exercise 
all  the  powers,  privileges,  and  franchises  granted  to  said  com- 
pany by  its  charter,  or  by  virtue  of  the  general  laws  of  this  state  ; 
and  the  said  purchaser  or  purchasers  and  their  associates  shall  be 
deemed  and  taken  to  be  the  true  owners  of  said  charter,  and  cor- 
porators under  the  same,  and  vested  with  all  tin;  powers,  rights, 
privileges,  and  benefits  thereof,  in  the  same  manner  and  to  the 
same  extent,  as  if  they  were  the  original  corporators  of  said  com- 
pany ;  and  shall  have  power  to  construct,  complete,  equip,  and 
work  the  road,  upon  tin;  same  terms  and  under  the  same  condi- 
tions and  restrictions  as  an;  imposed  by  their  charter  and  tl ;en> 

eral  laws  of  this  Btate. 

1  I  v. -Hud's  Dig.  1866,  p.  820,  arts.  .i;h'j,     ate,  Witherspoon  v.  Texas  Pacific  R.  It 
4916.    See,  as  to  construction  <>f  this  stat-     Co    18   I  ■ 

668 


§  681.]        RIGHTS    OF   PURCHASERS   AT    FORECLOSURE    SALES. 

The  directors  or  managers  of  the  old  company  at  the  time  of 
such  sale  are  made  trustees  of  the  creditors  and  stockholders  of 
that  company,  with  power  to  settle  its  affairs,  collect  and  pay  its 
debts,  to  sue  and  be  sued,  and  to  divide  the  surplus  among  the 
stockholders. 

681.  Vermont.1  —  In  all  cases  where  a  mortgage  of  any  rail- 
road or  an}7  part  thereof  made  by  any  railroad  company  in  this 
state,  to  secure  the  payment  of  bonds,  shall  have  been  foreclosed, 
and  the  legal  title  to  the  mortgaged  premises  vested  in  the  mort- 
gagees, any  number  of  persons  holding  a  majority  in  amount  of 
the  principal  of  the  bonds  so  secured  may  form  themselves  into  a 
corporation  for  the  purpose  of  owning  or  maintaining  and  oper- 
ating such  railroad,  or  part  thereof,  for  public  use,  in  the  convey- 
ance of  persons  and  property,  in  the  manner  following  :  they 
may  make,  subscribe,  and  file  articles  of  association,  in  which  shall 
be  set  forth  a  brief  statement  of  the  making  and  foreclosure  of 
the  mortgage  under  which  they  have  become  interested  in  such 
railroad  ;  the  amount  of  bonds  which  were  owing  upon  and  se- 
cured by  the  mortgage ;  the  name  of  the  corporation  to  be 
formed  ;  the  amount  of  its  capital  stock,  which  shall  not  exceed 
the  amount  of  principal  and  interest  of  said  bonds,  and  twenty- 
five  per  cent,  on  the  same  in  addition  thereto,  and  the  number  of 
shares,  each  of  which  shall  be  fifty  dollars,  into  which  the  capital 
stock  shall  be  divided  ;  the  number  of  directors  by  whom  the  cor- 
poration shall  be  managed  ;  the  names  of  the  persons  who  shall 
be  directors  for  the  first  year,  and  until  others  are  chosen  in  their 
places,  and  a  majority  of  the  directors  of  such  corporation  shall  be 
residents  of  this  state.  Each  subscriber  to  such  articles  shall 
state  in  his  subscription  the  number  of  shares  which  he  takes  or 
agrees  to  take,  and  the  amount  of  bonds  held  by  him  and  secured 
by  such  mortgage  which  he  intends  to  surrender  in  payment  or 
part  payment  of  his  subscription  ;  such  subscription  may  be  made 
by  the  holder  in  person,  or  by  his  attorney  or  agent,  and  any 
three  of  the  persons  named  in  said  articles  as  directors  may  be 
inspectors  of  such  subscriptions,  and  the  production  of  any  such 
bond  shall  be  evidence  of  the  right  of  the  person  holding  the  same 
to  subscribe  to  said  articles. 

Such  ai'ticles  of  association  shall  be  filed  in  the  office  of  the 
1  Gen.  Stat.  1870,  ch.  28,  §§  104,  105,  110,  112. 

664 


ORGANIZATION    INTO   NEW    CORPORATION.  [§681. 

secretary  of  state,  and  a  copy  thereof  filed  and  recorded  in  the 
offices  of  the  clerks  of  each  of  the  counties  through  which  the  said 
railroad  shall  jiass  ;  and  a  notice  of  the  formation  of  such  corpora- 
tion, and  of  the  filing  of  the  articles,  shall  be  published  once  a 
week  for  three  successive  weeks  in  a  newspaper  published  in  each 
of  said  counties,  if  any  be  published  therein,  and  for  six  successive 
days  in  two  or  more  dailies  published  in  each  of  the  cities  of  New 
York  and  Boston  ;  but  such  articles  shall  not  be  so  filed  until  the 
amount  of  bonds,  to  be  surrendered  by  the  subscribers  thereto  for 
that  purpose,  shall  be  at  least  a  majority  in  amount  of  the  princi- 
pal of  the  bonds  secured  by  the  mortgage  referred  to  in  such  arti- 
cles ;  nor  until  there  is  indorsed  thereon,  or  annexed  thereto,  an 
affidavit  made  by  at  least  three  of  the  directors  named  in  such 
articles,  that  they  have  in  good  faith  examined  the  list  of  such 
subscribers,  and  that  they  believe  the  said  subscribers  to  be  the 
holders  or  representatives  of  the  amount  of  bonds  therein  stated, 
and  that  they  believe  the  said  subscribers  intend,  in  good  faith,  to 
comply  with  the  terms  of  their  subscription.  If  there  should  be 
any  case  of  neglect  or  failure  to  organize  a  new  corporation  under 
the  provisions  of  this  statute,  when  a  mortgage  has  been  fore- 
closed, or  if  the  railroad  on  which  the  mortgage  exists  shall  be 
sold  or  assigned  by  virtue  of  any  order,  decree,  or  judgment  of 
any  court,  then  and  in  that  event,  when  the  purchaser,  purchasers, 
grantee,  or  grantees  shall  acquire  title  to  the  same  in  the  manner 
prescribed  by  law,  such  purchaser,  purchasers,  grantee,  or  grantees 
shall  have,  take,  and  possess  all  the  rights,  powers,  and  privileges 
in  this  statute  hereinbefore  granted  to  a  majority  of  the  bond- 
holders, and  be  subject  to  like  duties;  and  may  associate  with 
him  or  them  any  number  of  persons,  and  make,  sign,  and  file  arti- 
cles of  association  as  before  prescribed  by  this  chapter,  and  shall 
thereupon  be  a  corporation  with  all  the  powers,  privileges,  and 
franchises,  and  be  subject  to  all  the  duties  granted  to  or  imposed 
upon  railroad  corporations. 

Whenever  a  sale  shall  be  made  of  any  railroad  and  franchises, 
either  with  or  without  other  property,  under  or  by  virtue  of  any 
railroad  mortgage  or  power  of  sale  thereof,  for  the  security  of  any 
debi  of  any  railroad  company,  or  when  any  Buch  sale  shall  be 
made  under  the  order  of  any  court,  any  creditor  or  any  number 
of  creditors  of  such  road,  under  such  mortgage,  may,  within  three 
months  next  after  such  sale,   pay   into  the  Court    <>f  Chancery 

665 


§  682.]        RIGHTS    OF    PURCHASERS   AT    FORECLOSURE    SALES. 

making  such  order  of  sale,  or  if  no  order  of  sale  has  been  made, 
into  the  Court  of  Chancery  in  some  county  through  which  such 
road  is  located,  for  the  use  of  the  purchaser  at  such  sale,  a  sum 
bearing  the  same  proportion  to  the  price  paid  by  such  purchaser 
with  twelve  per  cent,  interest  thereon  from  the  time  of  such  sale, 
that  the  debt  so  held  by  such  creditor  under  such  mortgage 
bears  to  the  whole  amount  of  debt  outstanding  under  such  mort- 
gage ;  whereupon  such  creditor  so  paying  shall  have  a  legal  and 
equitable  interest  in  all  the  property  so  sold  in  common  with  such 
purchaser  in  the  proportions  aforesaid ;  and  in  all  such  cases  the 
Court  of  Chancery  shall  have  power  in  a  summary  manner  to  ad- 
just the  rights  of  the  parties,  and  to  grant  such  specific  relief  as 
the  nature  of  the  case  may  require. 

When  a  railroad  and  the  property  connected  therewith  is  sold 
under  a  mortgage  by  virtue  of  a  power  of  sale  or  under  decree  of 
court,  and  the  same  is  subject  to  a  prior  mortgage,  the  sale  is 
made  subject  to  such  prior  incumbrance.  The  purchasers  may 
organize  in  the  manner  above  provided  ;  and  the  new  corporation 
may  issue  preferred  stock  to  discharge  such  incumbrance.  The 
capital  stock  of  such  new  corporation  is  required  to  be  divided 
into  shares  of  not  less  than  fifty  dollars  each.1 

682.  Virginia.2 — If  a  sale  be  made  under  a  deed  of  trust  or 
mortgage  executed  by  a  company  on  all  its  works  and  property, 
and  there  be  a  conveyance  pursuant  thereto,  such  sale  and  con- 
veyance shall  pass  to  the  purchaser  at  the  sale,  not  only  the  works 
and  property  of  the  company  as  they  were  at  the  time  of  making 
the  deed  of  trust  or  mortgage,  but  any  works  which  the  company 
may,  after  that  time  and  before  the  sale,  have  constructed,  and 
all  other  property  of  which  it  may  be  possessed  at  the  time  of  the 
sale,  other  than  debts  due  to  it.  Upon  such  conveyance  to  the 
purchaser,  the  said  company  shall  ipso  facto  be  dissolved.  And 
the  said  purchaser  shall  forthwith  be  a  corporation,  by  any  name 
which  may  be  set  forth  in  the  said  conveyance,  or  in  any  writing 
signed  by  him  and  recorded  in  the  court  in  which  the  conveyance 
shall  be  recorded. 

The  corporation  created  by  or  in  consequence  of  such  sale  and 
conveyance  shall  succeed  to  all  franchises,3  rights,  and  privileges, 

1  Act  1866,  No.  13.  3  Code  1873,  ch.  61,  §  45. 

2  Code  1873,  ch.  61,  §  44. 

666 


ORGANIZATION   INTO   NEW   CORPORATION.  [§  683. 

and  perform  all  such  duties,  as  would  Lave  been  had  or  should 
have  been  performed  by  the  first  company,  but  for  such  sale  and 
conveyance  ;  save  only  that  the  corporation  so  created  shall  not 
be  entitled  to  the  debts  due  to  the  first  company,  and  shall  not  be 
liable  for  any  debts  of  or  claims  against  the  said  first  company, 
which  may  not  be  expressly  assumed  in  the  contract  of  purchase, 
and  that  the  whole  profits  of  the  business  done  by  such  corpo- 
ration shall  belong  to  the  said  purchaser  and  his  assigns.  His 
interest  in  the  corporation  shall  be  personal  estate,  and  he  or  his 
assigns  may  create  so  many  shares  of  stock  therein  as  he  or  they 
may  think  proper,  not  exceeding  together  the  amount  of  stock  in 
the  first  company  at  the  time  of  the  sale,  and  assign  the  same  in 
a  book  to  be  kept  for  that  purpose.  The  said  shares  shall  there- 
upon be  on  the  footing  of  shares  in  joint  stock  companies  gener- 
ally, except  only  that  the  first  meeting  of  the  stockholders  shall 
be  held  on  such  day  and  at  such  place  as  shall  be  fixed  by  the  said 
purchaser,  of  which  notice  shall  be  published  for  two  weeks  in  a 
newspaper. 

683.  West  Virginia.1  —  If  a  sale  be  made  under  a  deed  of 
trust  or  mortgage,  executed  by  a  railroad  or  other  internal  im- 
provement company  in  this  state,  on  all  its  works  and  property, 
and  there  be  a  conveyance  pursuant  thereto,  such  sale  and  con- 
veyance shall  pass  to  the  purchaser  at  the  sale,  not  only  the  works 
and  property  of  the  company  as'  they  were  at  the  time  of  making 
the  deed  of  trust  or  mortgage,  but  any  works  which  the  company 
may,  after  that  time  and  before  the  sale,  have  constructed,  and 
all  other  property  of  which  it  may  be  possessed  at  the  time  of  the 
sale,  other  than  debts  due  to  it.  Upon  such  conveyance  to  the 
purchaser,  the  said  company  shall  ipso  facto  be  dissolved.  And 
the  said  purchaser  shall  forthwith  be  a  corporation  by  any  Dame 
which  may  be  set  forth  in  said  conveyance,  or  in  any  writing 
signed  by  him  or  them,  and  recorded  in  the  recorder's  office  of 
any  county  wherein  the  property  so  sold,  or  any  part  thereof,  is 
situated,  or  where;  said  conveyance  is  recorded.  The  corporation 
created  by  or  in  consequence  of  such  sale  and  conveyance  shall 
succeed  to  all  such  franchises,  rights,  and  privileges,  and  perform 

1  Arts  1^71,  eli.  70,  §§1,2.    Act  of  Dec.     pressly  continued  in  force  by  Acl   L877, 
80,  1875,  with  similar  provisions,  was  re-    ch.  23. 
pealed,   and   tin;  above  Act  of    usTi    i 

667 


§  684.]        RIGHTS   OF   PURCHASERS   AT    FORECLOSURE   SALES. 

all  such  duties  as  would  have  been  had  or  should  have  been  per- 
formed by  the  first  company,  but  for  such  sale  and  conveyance  ; 
save  only  that  the  corporation  so  created  shall  not  be  entitled  to 
debts  due  to  the  first  company,  and  shall  not  be  liable  for  any 
debts  of,  or  claims  against,  the  said  first  company,  which  may  not 
be  expressly  assumed  in  the  contract  of  purchase ;  and  that  the 
whole  profits  of  the  business  done  by  such  corporation  shall  be- 
long to  the  said  purchaser  and  his  assigns.  His  interest  in  the 
corporation  shall  be  personal  estate,  and  he  or  his  assigns  may 
create  so  many  shares  of  stock  therein  as  he  or  they  may  think 
proper,  not  exceeding,  together  the  amount  of  stock  in  the  first 
company  at  the  time  of  the  sale,  and  assign  the  same  in  a  book 
kept  for  that  purpose.  The  said  shares  shall  thereupon  be  on  the 
footing  of  shares  in  joint  stock  companies  generally,  except  only 
that  the  first  meeting  of  the  stockholders  shall  be  held  on  such 
day  and  at  such  place  as  shall  be  fixed  by  the  said  purchaser,  of 
which  notice  shall  be  published  for  four  successive  weeks  in  a 
newspaper  printed  in  each  county  in  the  state  wherein  said  cor- 
poration may  do  business. 

684.  Wisconsin.1  —  In  case  of  sale  of  any  railroad  or  rail- 
roads, or  any  part  thereof,  constructed  or  in  process  of  construc- 
tion by  any  railroad  company,  on  or  by  virtue  of  any  trust  deed 
or  on  any  foreclosure  of  any  mortgage  thereupon,  the  party  or 
parties  acquiring  title  under  such  sale,  and  their  associates,  succes- 
sors, and  assigns,  shall  have  and  acquire  thereby,  and  shall  ex- 
ercise and  enjoy  thereafter,  all  and  the  same  rights,  privileges, 
grants,  franchises,  immunities,  and  advantages  in  and  by  said 
mortgage  or  trust  deed  enumerated  and  conveyed,  which  belonged 
to  and  were  enjoyed  by  the  company  making  such  deed  or  mort- 
gage, or  contracting  such  debt,  so  far  as  the  same  relate  and  ap- 
pertain to  that  portion  of  said  road,  or  the  line  thereof  mentioned 
and  described  in  and  conveyed  by  said  mortgage  or  trust  deed, 
and  no  further,  as  fully  and  absolutely  in  all  respects  as  the  cor- 
porators, shareholders,  officers,  and  agents  of  such  company  might 
or  could  have  done  therefor,  had  not  such  sale  or  purchase  taken 
place ;  such  purchasers,  their  associates,  successors,  or  assigns, 
may  proceed  to  organize  anew  by  filing  articles  of  association  and 
electing  directors  as  provided  in  this  act ;  and  may  distribute  and 
1  Laws  1877,  ch.  144,  §  1. 

668 


ORGANIZATION  INTO   NEW    CORPORATION.  [§  684. 

dispose  of  stock,  take  the  same  or  another  name,  and  may  conduct 
their  business  generally  in  the  manner  provided  in  this  act ;  and 
such  purchaser  or  purchasers  and  their  associates  shall  thereupon 
be  a  corporation,  with  all  the  powers,  privileges,  and  franchises 
conferred  by,  and  be  subject  to  the  provisions  of  this  act ;  pro- 
vided, that  if  the  parties  purchasing  at  such  foreclosure  sale,  and 
so  organized  anew,  own  or  represent  a  majority  of  the  bonds  se- 
cured by  said  mortgage  or  trust  deed,  and  also  include  the  per- 
sons who  at  the  rendition  of  such  judgment  or  foreclosure  decree 
owned  a  majority  of  the  capital  stock  of  said  company,  the  sale 
under  such  judgment  or  decree  shall  not  be  deemed  or  held  to  be 
such  a  sale  within  the  meaning  of  any  law  of  this  state,  particu- 
lar^ applicable  to  said  company,  as  to  deprive  the  parties  so  pur- 
chasing and  organizing  anew,  or  the  company  so  organized,  of  any 
special  exemption,  privilege,  or  immunity  granted  by  any  law  of 
this  state  to  the  company  which  executed  such  mortgage  or  trust 
deed,  and  operating  upon  any  of  the  property  in  such  instrument 
described,  embraced,  or  referred  to  ;  but  such  parties  so  purchas- 
ing, as  in  this  proviso  first  mentioned,  and  the  company  organized 
by  such  purchasers,  shall  have,  possess,  and  enjoy  any  such  special 
exemption,  privilege,  or  immunity  as  fully  as  the  company  exe- 
cuting such  mortgage  or  trust  deed  might  or  could  have  done  if 
such  foreclosure  or  sale  had  not  taken  place. 

669 


CHAPTER  XXIV. 

PROCEEDINGS    IN    BANKRUPTCY    AND    INSOLVENCY    AGAINST 
RAILROAD    COMPANIES. 

685.  Railroad  companies  are  within  the  operation  of  the 
late  Bankrupt  Act  of  the  United  States,  which  in  terms  was 
made  to  apply  "  to  all  moneyed,  business,  or  commercial  corpora- 
tions and  joint  stock  companies."  1  It  provided  that  like  proceed- 
ings may  be  had  and  taken  as  are  provided  in  the  case  of  other 
debtors,  either  "  upon  the  petition  of  any  officer  of  such  corpora- 
tion or  company,  duly  authorized  by  a  vote  of  a  majority  of  the 
corporators  at  any  legal  meeting  called  for  the  purpose,  or  upon 
the  petition  of  any  creditor  of  such  corporation  or  company."  But 
no  discharge  could  be  granted  to  such  corporation  or  company,  or 
to  any  officer  or  member  of  it.2  The  constitutionality  of  this  act, 
as  applied  to  persons  other  than  merchants  and  traders,  has  been 
called  in  question,  on  the  ground  that  at  the  time  of  the  adoption 
of  the  Constitution  the  English  system  of  bankrupt  laws  was  lim- 
ited to  such  persons,  and  therefore  it  was  argued  that  the  grant  to 
Congress  of  the  power  to  establish  uniform  bankrupt  laws  must 
be  construed  as  limited  to  the  making  of  a  bankrupt  law  which 
should  apply  only  to  the  same  persons.  But  this  limitation  in 
the  English  system  is  a  mere  matter  of  policy,  and  by  no  means 
enters  into  the  nature  of  such  laws.3  This  question  of  constitu- 
tionality is,  however,  no  longer  open  to  discussion.4 

686.  The  Bankrupt  Act  not  inapplicable  to  corporations  on 

1  "Winter  v.  Iowa,  Minn.  &  N.  Pacific  Boston,  Hartford  &  Erie  R.  R.  Co.  4  N. 

Ry.  Co.  2  Dill.  487  ;  S.  C.  7  N.  B.  Reg.  B.  Reg.  314. 

291  ;  In  re  California  Pacific  R.  R,  Co.  3  2  Bankrupt  Law,  §  5122,  Rev.  Stat,  of 

Sawyer,  240;  Sweatt  v.  Boston,  Hartford  U.  S. ;  Bump's  Law  of  Bankruptcy,  10th 

&  Erie  R.  R.  Co.  3  Cliff.  339;    5  N.  B.  ed.  791. 

Reg.  234  ;  Alabama  &  Chattanooga  R.  R.  3  Story's  Com.  on  Const.  §  1113. 

Co.  v.  Jones,  5  N.  B.  Reg.   97 ;  Adams  v.  4  In  re  California   Pacific  R.  R.  Co.  3 

Sawyer,  240. 

670 


PROCEEDINGS   IN    BANKRUPTCY,    ETC.  [§  687. 

the  ground  that  it  provides  no  discharge  for  them.  —  It  has 
also  been  objected  that  the  Bankrupt  Act  is  unconstitutional  so  far 
as  it  applies  to  corporations,  because  it  denies  to  them  the  right 
in  any  case  to  obtain  a  discharge.  But  it  has  never  been  decided 
that  "  a  law  on  the  subject  of  bankruptcy,  within  the  meaning  of 
the  Constitution,  must  provide  for  the  discharge  of  all  persons 
subject  to  its  provisions."  Mr.  Justice  Hoffman,  of  the  District 
Court  of  the  United  States  for  California,1  in  overruling  this 
objection,  said  :  "  The  books  contain  about  forty  reports  of  such 
cases  in  the  District  and  Circuit  Courts,  and  in  the  Supreme 
Court  of  the  United  States.  In  no  one  has  the  objection  I  have 
been  considering  been  noticed.  I  do  not  claim  that  this  general 
acquiescence  in  the  validity  of  the  law  has  the  authority  of  an 
express  judgment  on  the  point ;  but  surely  such  a  tacit  admission 
and  consent,  semper  ubique  et  ab  omnibus,  are  entitled  to  great 
weight  in  determining  a  doubtful  question  of  constitutional  con- 
struction, even  conceding  this  question  to  be  such." 

Railroad  and  other  private  corporations  are  also,  like  natural 
persons,  severally  subject  to  compulsory  proceedings  in  insolvency 
under  the  state  insolvent  laws,2  or  may  voluntarily  take  advan- 
tage of  such  laws.3 

687.  Authority  to  present  a  petition  in  behalf  of  the  corpo- 
ration. —  In  bankruptcy  proceedings  against  the  Alabama  and 
Florida  Railroad  Company  it  was  objected  that  no  officer  of  the 
company  had  been  duly  authorized  by  a  vote  of  the  majority  of 
the  corporators  present  at  a  legal  meeting  called  for  the  purpose 
to  present  any  petition  for  adjudication  of  bankruptcy.  The  Cir- 
cuit Court  of  the  United  States  held,  however,  that  the  proceed- 
ings were  regularly  instituted,  since,  if  any  irregularity  occurred  in 
the  call  for  the  stockholders'  meeting,  by  which  tin-  direction  was 
given  to  institute  the  proceedings,  it  arose  from  the  contumacy  "I 
certain  directors,  who  resigned  their  offices  for  the  purpose  oi  em- 
barrassing the  stockholders.     The  city  of  Pensacola  owned  more 

1  In  re  California  Pacific  R.  It.  Co.  3  corporations  of  the  Btate  except  railroad 

Sawyer,  240.  and   banking  companies.    G.  S.  I860,  ch. 

a  Piatt  v.  N.  T.  &  Boston  B.  B.  Co.  26  118,  §   113.    A   street  railway  company 

Conn.  544.  cannot  be  subjected  t"  proceedings  under 

8  The  Insolvent  Act  of  Massachusetts,  this  act.     Central  Nat  Bank 

from  which  the   National    Bankrupt  Act  ter  v.  Worc<   tei  Horse  B.  R.  Co.  13  Allen 

was  for  the  most  part  taken,  applies  to  all  (Ms 

671 


§  688.]         PROCEEDINGS   IN    BANKRUPTCY   AND   INSOLVENCY 

than  five  sevenths  of  the  stock  of  the  company,  and  it  was  suffi- 
ciently  clear  that  the  city  authorities  took  all  practicable  measures 
for  having  a  fair  stockholders'  meeting  and  vote  on  the  subject ; 
and  that  the  vote  of  the  city  was  positive  in  favor  of  the  bank- 
ruptcy proceedings,  and  of  the  instruction  to  the  president  of  the 
railroad  company  to  institute  them.1 

The  provisions  in  regard  to  authorizing  proceedings  in  bank- 
ruptcy apply  only  to  voluntary  proceedings.  No  vote  of  the  cor- 
porators is  necessary  to  authorize  counsel  to  appear  for  a  corpo- 
ration and  consent  to  an  adjudication  of  bankruptcy,  or  to  admit 
acts  of  bankruptcy  when  involuntary  proceedings  against  it  have 
been  commenced  by  a  creditor.  In  such  case  the  usual  course  is 
adopted,  and  the  case  proceeds  as  in  ordinary  cases  when  legal 
measures  are  instituted  against  corporations.  They  have  the 
power  to  appear  by  counsel,  and  counsel  have  the  power  to  admit 
facts  and  to  bind  corporations  in  the  same  manner  as  they  do  in 
other  suits.2 

Upon  the  filing  of  a  petition  in  bankruptcy  against  a  railroad 
company  by  creditors  the  court  has  authority  to  inquire  into  the 
value  of  securities  held  by  the  petitioning  creditors  and  others,  in 
order  to  ascertain  whether  the  petitioners  hold  provable  claims  to 
the  amount  required  by  the  Bankrupt  Act.3 

Service  of  the  petition  in  bankruptcy  upon  a  corporation  is 
made  personally  by  delivering  a  copy  of  the  petition  and  order  to 
show  cause  to  its  head  or  principal  officers,  or  by  leaving  the  or- 
der at  the  principal  place  of  business  of  the  corporation,  which, 
within  the  meaning  of  the  law,  is  its  "usual  place  of  abode."4 

688.  After  bankruptcy  proceedings  have  been  commenced 
against  a  railroad  corporation  in  one  of  two  states  in  which 
it  has  a  place  of  business,  and  under  the  laws  of  which  it  is  char- 
tered, these  proceedings  should  be  allowed  to  proceed  to  their 
final  conclusion  without  the  interference  of  the  District  Court  of 
the  other  state.  The  Boston,  Hartford  and  Erie  Railroad  Com- 
pany was  chartered  by  the  State  of  Connecticut,  and  afterwards 

i  Davis  v.  Railroad  Co.  1  Woods,  661,  Sawyer,  240;  In  re  Osage  Valley  &  So. 

per  Bradley,  Circuit  Justice.  Kansas  R.  R.  Co  9  N.  B.  R.  281. 

2  Lister  v.  Republic  F.  Ins.  Co.  7  Biss.  4  In  re  California  Pacific  R.  R.  Co.  3 
26.  Sawyer,  240. 

3  In  re  California  Pacific  R.  R.  Co.  3 

672 


AGAINST    RAILROAD    COMPANIES.  [§  6S8. 

received  a  grant  of  corporate  privileges  from  the  State  of  Massa- 
chusetts. The  company  was  adjudged  bankrupt  in  the  latter 
state,  and  subsequently  proceedings  in  bankruptcy  were  com- 
menced in  Connecticut.  The  creditor  on  whose  petition  the  adju- 
dication had  been  made  in  Massachusetts  petitioned  the  District 
Court  in  Connecticut,  alleging  that  the  proceedings  in  Connec- 
ticut were  collusive,  and  would  prejudice  the  creditors  of  the  com- 
pany, and  embarrass  the  settlement  of  the  estate,  and  praying  to 
be  allowed  to  appear  and  defend  against  the  petition,  and  for  fur- 
ther relief. 

This  petition  was  dismissed  by  the  District  Court  in  Connec- 
ticut, which  proceeded  to  adjudicate  the  corporation  bankrupt. 
Upon  a  petition  of  review  the  Circuit  Court  of  the  United  States 
held  that  this  petition  should  have  been  entertained  ;  that  the 
facts  set  forth  warranted  the  creditor's  intervention,  and  that  the 
District  Court  for  Massachusetts  should  be  permitted  to  exercise 
the  jurisdiction  it  had  acquired,  and  that  the  proceedings  in  the 
District  Court  for  Connecticut  should  be  stayed.  Judge  Wood- 
ruff, delivering  the  opinion  of  the  court,  said  :  *  "  I  am  of  opinion 
that,  in  the  absence  of  any  express  provision,  it  would  be  the  duty 
of  the  other  District  Courts  to  yield  the  control  and  direction  of 
the  entire  proceeding  to  that  one  whose  jurisdiction  was  first  in- 
voked, and  whose  power  is  ample  to  accomplish  all  the  purposes 
of  the  law,  and  protect  the  rights  of  all  parties  interested,  under 
the  authority  of  the  same  act  which  governs  each  of  them.  With- 
out this,  it  is  difficult  to  see  how  the  law  can  be  safely,  uniformly, 
and  legally  administered.  On  the  appointment  of  an  assignee, 
all  the  property  of  the  bankrupt  is,  by  express  terms,  vested  in 
him  by  the  assignment  made,  and  such  assignment  relates  back 
to  the  commencement  of  the  proceedings.  When,  therefore,  one 
court,  having  jurisdiction,  has  adjudged  a  debtor  a  bankrupt,  ap- 
pointed an  assignee,  and  executed  the  assignment,  nothing  of  tho 
property  of  the  bankrupt  remains  to  him  to  be  taken  or  admin- 
istered by  another  tribunal.  All  is  vested  in  the  assignee  ap- 
pointed by  the  other,  as  of  the  time  when  tin-  iir.sL  petition  was 
filed." 

Whether  the  bankrupt  company  was  to  be  regarded  as  a  sin  Mm 
corporation,  or  as  two  corporations  united  in  interest,  having  one 
and  the  same  corporators,  the  same  creditors,  and  the  Bame  prop- 

1  In  re  Boston,  Hartford  &  Erie  It.  K.  Co.  'J  Blatchf.  101. 

4-J  678 


§§  689,  690.]       PROCEEDINGS   IN   BANKRUPTCY    AND   INSOLVENCY 

erty,  the  District  Court  for  Massachusetts,  having  first  acquired 
jurisdiction  of  the  case,  should  be  permitted  to  retain  jurisdiction 
until  the  proceedings  should  be  closed.  The  proceedings  in  the 
District  Court  for  Connecticut  need  not  be  necessarily  dismissed ; 
but  if  not  dismissed  must  be  stayed. 

Whether  the  insolvency  courts  of  a  state  have  jurisdiction  of 
a  consolidated  corporation  formed  in  part  of  railroad  companies 
originally  organized  under  the  laws  of  other  states,  the  consolida- 
tion having  been  effected  by  concurrent  legislation  of  the  several 
states  in  which  the  entire  line  of  road  was  located,  is  a  different 
and  more  difficult  question.1  It  would  seem  that  such  courts 
would  have  no  jurisdiction  of  the  companies  organized  in  other 
states,  and  holding  property  in  them  by  virtue  of  such  organiza- 
tion, except  so  far  as  these  courts  could  reach  the  property  and 
franchises  in  other  states  through  the  jurisdiction  and  control  of 
the  courts  over  the  officers  of  the  consolidated  company. 

689.  A  railroad  company  is  not  a  "  banker,  broker,  mer- 
chant, trader,  manufacturer,  or  miner,"  within  the  terms  of  the 
Bankrupt  Act,  providing  that  the  fraudulent  stopping  of  pay- 
ment by  any  person  included  in  any  one  of  these  classes,  or  the 
stopping  or  suspension  and  non-resumption  of  payment  by  any 
person  included  in  any  of  these  classes  of  his  commercial  paper 
for  fourteen  days,  though  not  fraudulent,  shall  be  acts  of  bank- 
ruptcy.2 

690.  Whether  precedence  will  be  given  to  foreclosure  suits 
or  to  proceedings  in  bankruptcy  depends  upon  the  discretion  of 
the  court  in  view  of  the  circumstances  of  the  case.  The  Lake  Su- 
perior Ship  Canal,  Railroad,  and  Iron  Company  having  executed 
four  successive  mortgages  of  its  canal  and  property,  the  trustee 
under  the  first  mortgage  filed  a  bill  in  equity  in  the  Circuit  Court 
of  the  United  States  for  the  Eastern  District  of  Michigan  to  fore- 
close the  mortgage,  and  to  this  bill  the  company  and  the  subse- 
quent mortgagees  were  made  parties.  A  receiver  was  appointed 
in  this  suit,  and  authority  given  him  to  create  an  indebtedness 
which  should  be  a  first  lien  upon  the  property.  The  second  and 
third  mortgagees  soon  afterwards  filed  bills  in  the  same  court  to 

1  See  Piatt  v.  N.  Y.  &  Boston  R.  R.  Co.  2  Winter  v.  Iowa,  Minn.  &  North  Pacific 
26  Conn.  544.  Ry.  Co.  2  Dill.  487. 

674 


AGAINST   RAILROAD   COMPANIES.  [§  690. 

foreclose  these  mortgages,  without  first  obtaining  leave  of  court. 
The  mortgagor  was  then  adjudged  bankrupt  and  assignees  ap- 
pointed, who  by  supplemental  bills  were  made  parties  to  the  sev- 
eral foreclosure  suits.  Subsequently  the  trustee  under  the  fourth 
mortgage  tiled  a  bill  to  foreclose  that  mortgage  in  the  Bank- 
ruptcy Court.  The  assignees  objected  to  the  maintenance  of  the 
suits  by  the  subsequent  mortgagees,  because  they  were  already 
impleaded  in  the  suit  on  the  first  mortgage,  and  their  rights 
could  be  adjusted  in  that  suit;  and  moreover  the  amount  of  the 
prior  lien  being  in  doubt  and  having  been  put  in  issue  by  the 
pleadings,  it  would  be  impossible  to  make  a  proper  decree  under 
either  of  the  subsequent  bills.  The  assignees  therefore  filed  an 
original  bill  in  the  Circuit  Court,  which  had  for  its  object  a  sale 
of  the  mortgaged  premises  free  of  liens  and  the  ascertainment  of 
the  rights  of  the  various  parties  interested  in  the  proceeds,  and 
their  distribution  accordingly.  The  proceedings  in  the  foreclosure 
cases  were  stayed.  The  question  then  arose  whether  the  fore- 
closure suits  should  be  permanently  stayed,  or  whether  the  equi- 
ties of  the  parties  should  be  worked  out  in  those  suits,  or  some 
one  of  them.1 

In  regard  to  the  subsequent  foreclosure  suits  the  court  was  of 
opinion  that  they  should  not  be  prosecuted  without  leave  of  court, 
and  that  such  leave  should  not  be  granted,  inasmuch  as  the  relief 
sought  could  be  had  in  the  pending  legislation.  A  strong  prefer- 
ence was  expressed  for  continuing  the  working  of  the  causes  in 
the  hands  of  the  mortgagees,  whose  interests  were  greater  than 
those  of  the  assignees  ;  and  for  making  the  suit  on  the  first  mort- 
gage the  means  of  working  out  the  rights  and  remedies  of  all 
parties. 

The  court,  however,  declared  its  power  to  order  all  matters 
pending  in  the  several  foreclosure  suits  in  that  court  to  be  abju- 
dicated in  an  original  suit,  commenced  in  that  court  by  the  as- 
signees in  bankruptcy;  that  it  was  a  question  of   practice  and 

convenience  whether  the  court  would  take  tin-  one  court t  the 

other.  The  court  might  also  entertain  a  bill  by  the  assignees 
in  bankruptcy  against  the  several  Lien-holders  t"  ascertain  the 
amounts  due,  and  to  s<-ll  tin;  property  free  "I"  incumbrances.  The 
power  exercise!  in  the  Court  of   Bankruptcy,  to  Bell  mortga      I 

1  Sutherland  v.  Lake  Superior  ship  Canal,  B.  B.  ft  Iron  <'<••  i  Cent.  Lm  Jour. 

127  .  '..  B,  Bi  g.298   307. 

675 


§  691.]        PROCEEDINGS  IN   BANKRUPTCY   AND  INSOLVENCY 

property  free  from  all  incumbrances,  is  but  an  instance  of  the  ex- 
ercise of  a  power  familiar  to  a  Court  of  Chancery.1 

691.  The  Bankruptcy  Court  has  no  authority  to  take  prop- 
erty out  of  the  possession  of  a  receiver  appointed  under  order 
of  a  state  court  in  chancery,  in  proceedings  for  foreclosure  pre- 
vious to  the  commencement  of  proceedings  in  bankruptcy.  The 
possession  of  the  receiver  in  such  case  is  the  possession  of  the 
mortgagees,  and  cannot  be  interfered  with  without  liquidating 
the  debt.  The  trustees  of  the  first  mortgage  of  the  Alabama  and 
Florida  Railroad  Company,  on  the  first  day  of  June,  1867,  filed 
a  bill  to  foreclose  it  in  a  county  court  of  the  State  of  Florida, 
and  on  the  eleventh  day  of  the  following  month  a  receiver  was 
appointed,  who  took  possession  of  the  railroad  and  mortgaged 
property.  Two  days  after  the  appointment  of  the  receiver  the 
company,  by  its  officers,  filed  a  petition  in  bankruptcy,  and  was 
adjudged  bankrupt  by  the  District  Court  of  the  United  States 
for  the  Northern  District  of  Florida,  and  subsequently  an  assignee 
was  appointed.  On  his  application  the  District  Court  ordered 
the  mortgaged  property  to  be  taken  out  of  the  hands  of  the  re- 
ceiver and  delivered  to  the  assignee,  by  the  United  States  mar- 
shal. Afterwards,  in  February,  1868,  the  same  court  ordered  the 
property  to  be  sold  as  perishable  property.  The  sale  took  place 
on*  the  twenty-fifth  day  of  March  following,  the  trustees  of  the 
mortgage  giving  public  notice  that  they  claimed  the  proceedings 
to  be  illegal.  The  purchasers  of  the  road  organized  a  new  corpo- 
ration under  the  name  of  the  Pensacola  and  Louisville  Railroad 
Company.  The  trustees  and  receiver  then  filed  a  petition  in  the 
Circuit  Court  of  the  United  States  for  a  revision  of  the  proceed- 
ings of  the  District  Court.  The  circuit  justice,  Mr.  Bradley, 
made  a  decree  declaring  the  taking  of  possession  of  the  property 
by  the  assignee  to  be  illegal,  and  setting  aside  the  order  of  the 
District  Court  requiring  the  receiver  to  surrender  the  property. 
The  question  whether  the  sale  in  bankruptcy  should  be  set  aside 
was  reserved,  and  after  argument  was  now  decided ;  the  sale  being 
set  aside  and  the  purchase  money  paid  to  the  assignee  ordered  to 
be  returned.2     Mr.  Justice  Bradley,  delivering  the  opinion  of  the 

1  See,  also,  Ellis  v.  Boston,  Hartford  &     See,  also,    Sutherland  v.   Lake  Superior 
Erie  R.  R.  Co.  107  Mass.  1,  32.  Ship  Canal,  R.  R.  &  Iron  Co.  1  Cent.  Law 

2  Davis  v.  Railroad  Co.  1  Woods,  661.     Jour.  127  ;  9  N.  B.  Reg.  298,  307;  Myer 

676 


AGAINST   RAILROAD   COMPANIES.  [§§  691,  692. 

court,  said :  "  The  respondents'  assignee  contended  that  the  sale 
should  stand  although  the  order  of  sale  was  illegal.  I  do  not 
think  so  in  such  a  case  as  this.  It  is  analogous  to  that  of  a  sale 
by  a  sheriff  on  execution  against  A.  of  property  belonging  to  B. 
The  sale  is  void.  The  owner  may  recover  his  property  of  the 
purchaser.  So  may  the  trustees  in  this  case.  They  ought  not  to 
be  compelled  to  take  the  proceeds  arising  from  the  unlawful  sale. 

Their  rights  might,  in  this  way,  be  wholly  sacrificed The 

question  then  arises  as  to  the  disposition  to  be  made  of  the  pur- 
chase money  paid  or  secured  to  be  paid  by  the  respondents.  The 
purchasers  insist  that  it  should  be  returned  ;  the  assignee,  that  it 
should  be  retained  by  him  for  the  benefit  of  the  general  creditors. 
From  an  examination  of  the  evidence  it  seems  clear  that  the  as- 
signee assumed  to  sell  the  property  clear  of  the  mortgage.  He 
did  not  profess  to  sell  the  mere  equity  of  redemption.  The  re- 
spondents in  their  answer  claim  that  the  sale  was  made  free  from 
the  lien  of  the  mortgage.  They  claim  that  the  mortgage  was 
void.  And  whilst  it  is  true  that  the  petitioners  gave  notice  at 
the  time  of  the  sale  that  it  would  be  subject  to  their  lien,  the 
assignee  and  the  purchasers  did  not  act  on  this  view.  The  latter 
never  intended  to  purchase  subject  to  the  lien,  but  clear  of  the 
lien.  Had  the  receiver  sold  the  property  subject  to  the  first  mort- 
gage, the  amount  bid  for  it  by  the  respondents  would  have  been 
payable  by  them,  and  would  have  been  a  proper  asset  of  the. 
bankrupt  company's  estate.  But  as  they  did  not  sell  it  in  that 
manner,  but  sold  it  as  unincumbered  property,  so  far  as  the  first 
mortgage  was  concerned,  and  as  that  was  a  clear  mistake,  since 
the  first  mortgage  was  a  valid  lien  and  absorbed  the  entire  prop- 
erty, the  sale  ought  to  be  held  invalid,  and  the  proceeds  of  the 
sale  ought  to  be  returned  to  the  purchasers.  This  is  clearly  the 
justice  of  the  case,  and  in  my  judgment  the  law  is  not  contrary 
thereto." 

692.  For  what  amount  a  holder  of  bonds  as  collateral  may 
prove.  —  When  a  company  has  pledged  its  own  mortgage  bonds 

for  ;i  debt  of  a  less  amount,  w|>"ii  a  winding  up  of  the piny, 

tin-  holder  is  entitled  to  receive  dividends  on  the  whole  amount 

v.  Crystal  Luke  Pickling  &   Preserving     53.     Bat  see,  contra,  In  rt  Merchant*' Ins. 
Works,    1 1    X.    B.    ft  g.   9;   Freeman   v.     I  o.  3  Bis  .  162 
Fort,  lb.  46  j  High  on  Receivers,  §§  52  & 

077 


§§  693,  694.]         PROCEEDINGS   IN   BANKRUPTCY,   ETC. 

expressed  to  be  secured  by  the  debentures  pari  passu  with  the 
holders  of  the  other  debentures;  but  of  course  is  not  to  receive 
more  in  the  whole  than  what  is  due  upon  the  original  debt  with 
interest.1  The  debenture  holder  could  not  otherwise  reach  his 
share  of  the  property  mortgaged,  as  to  which  he  bad  priority  over 
other  creditors.2 

A  creditor  holding  the  guaranty  of  a  third  person  may  prove 
his  claim  in  full  against  the  principal  debtor  without  surrendering 
the  guaranty.3  The  dividend  received  in  respect  to  the  amount 
guaranteed  goes  to  reduce  the  claim  against  the  guarantor.4 

693.  Fraudulent  mortgagees  allowed  to  prove  their  actual 
advances  as  an  unsecured  debt.  —  A  mortgage  given  by  a  rail- 
road company  to  an  association  organized  as  a  corporation  whose 
declared  object  was  "  the  completion  and  ownership  "  of  such  rail- 
road, and  of  which  association  the  president  and  vice  president  of 
the  railroad  company  were  secret  members,  was  held  to  be  con- 
structively fraudulent  by  reason  of  the  trust  relations  between  the 
parties  to  it,  and  in  view  of  the  effect  on  the  company  and  its 
creditors  of  giving  judicial  sanction  to  the  transaction  ;  but  upon 
the  bankruptcy  of  the  railroad  company  the  association  was  al- 
lowed to  prove  the  amount  actually  advanced  by  the  association 
in  money  to  the  company  as  an  unsecured  debt.5 

694.  Bankruptcy  proceedings  against  a  railroad  company 
should  be  dismissed  when  its  stockholders  have  in  good  faith 
purchased  nearly  all  the  floating  debt  of  the  company,  and  are 
willing  to  give  proper  security  for  the  payment  of  the  balance  of 
such  indebtedness.  It  being  evidently  for  the  best  interest  of  all 
parties,  and  the  desire  of  a  large  majority,  that  the  corporation 
shall  be  managed  by  its  own  officers,  the  court  will  not  retain  the 
custody  and  control  of  its  property,  in  order  to  assist  a  few  object- 
ing creditors  to  coerce  their  claims.  For  such  purposes  the  Bank- 
ruptcy Court  has  full  equitable  jurisdiction.6 

1  Regent's  Canal  Iron  Works  Co.  in  re,        4  Raikes  v.  Todd,  8  Ad.  &  El.  846. 

L.  R.  3  Ch.  D.  43  ;  Jerome   v.  McCarter,  5  Kappner  v.  St.  Louis  &  St.  Joseph  R. 

94  U.  S.  734,  740.  R.  Ass'n,  3  Dill.  228. 

2  Per   Colt,  J.,  in   Third  Nat.  Bank  v.  6  In  re  Indianapolis,  Cincinnati  &  La 
Eastern  R.  R.  Co.  122  Mass.  240.  Fayette  R.  R.  Co.  5  Biss.  287. 

3  In  re  Anderson,  7  Biss.  233. 

678 


INDEX. 


Reference  is  to  Sections. 

ACCOMMODATION   PAPER,  when  binding  upon  corporation,  308. 
ACCOUNTS  of  receivers.     See  Receivers,  527-530. 

ADVANCES  by  officers  of  corporation  for  preservation  of  property  not  en- 
titled to  priority,  565. 

by  creditor  to  preserve  property  have  no  priority,  552. 
AFTER-ACQUIRED   PROPERTY  may  be  embraced  in  a  statutory  mort- 
gage, 81. 

may  be  charged  on  what  principle,  121-127. 

how  regarded  at  law,  121. 

how  regarded  in  equity,  122. 

in  Louisiana,  not  subject  to  mortgage,  122. 

railroad  company  may  include  in  mortgage,  123. 

railroad  regarded  as  an  entire  thing,  124,  125. 

covered  under  implied  authority  to  mortgage,  124. 

doctrine  that  it  passes  as  incident  to  franchise,  126. 

not  applicable  to  mortgages  of  divisions  of  road,  127. 
Wliat  terms  sufficient  to  include,  128-141. 

word  "  undertaking"  may  have  the  effect,  128. 

whether  branch  road  might  be  included  as,  129. 

new  location  of  road  covered  as,  130. 

lien  takes  effect  upon  as  soon  as  acquired,  130. 

operation  of  mortgage  upon  may  be  limited,  131. 

land  not  within  the  terms  of  the  mortgage,  132. 

personalty  not  within  the  terms  of  mortgage,  133. 

land  grant  which  corporation  has  no  power  to  accept,  134. 

land  grant  not  yet  earned,  135. 

lease  may  be  included  in  mortgage,  136. 

enumeration  of  some  articles  excludes  others,  137. 

capital  stock  of  another  company,  138. 

iron  rails  not  laid  down,  139. 

fuel  for  use  of  road,  140. 

office  furniture  suitable  for  company,  111. 
Mortgage*  attach  in,  subject  to  existing  liens,  142-3  i">- 

bought  under  conditional  Bale,  l  L8. 

verbal  agreement  does  not  constitute  lien  upon,  '  18. 

obtained  through  fraud  nut  subject  to  mortgage,  '  14. 

when  junior  mortgagees  take  subject  i"  prior  mortgage  "t\  1 1"». 

679 


INDEX. 

Reference  is  to  Sections. 

ALABAMA,  statute  authorizing  railroad  mortgages,  27. 
legal  nature  of  rolling-stock  in,  152. 
constitutional  provision  prohibiting  municipal  aid  to  private  corporations, 

232. 
statute  giving  special  lien  upon  railroads,  583. 

statute   organizing  purchasers  at  foreclosure  sale  into   new  corporation, 
GG2. 
ALTERATION  of  negotiable  bonds.     See  Bonds,  211-216. 
ARKANSAS,  statute  authorizing  railroad  mortgages,  28. 
rolling  stock  is  personal  property  in,  171. 

constitutional  prohibition  of  municipal  aid  to  private  corporations,  233. 
statute  for  organizing  purchasers  of  railroad  at  foreclosure  sale  into  cor- 
poration, 663. 
ASSIGNMENT  of  debenture,  form  of,  72. 

BANKRUPTCY,  proceeding  against  railroads,  685-694. 
railroad  companies  within  the  Bankrupt  Act,  685. 
although  it  provides  no  discharge,  686. 
authority  to  present  petition  for  corporation,  687. 
of  railroad  corporation  existing  in  several  states,  688. 
railroad  company  does  not  become  bankrupt  by  stopping  payment,  689. 
whether  foreclosure  proceedings  have  precedence  to,  690. 
court  cannot  take  property  out  of  possession  of  receiver,  691. 
for  what  amount  holder  of  bonds  as  collateral  may  prove  in,  692. 
fraudulent  mortgagee  may  prove  actual  advances  as  unsecured  debt,  693. 
proceedings  should  be  dismissed  when,  694. 
BONDHOLDERS  are  represented  by  the  trustees  in  suits  affecting  the  secu- 
rity, 361. 
may  sue  when  trustees  fail  or  refuse  to  act,  362. 
notice  to  trustees  is  generally  notice  to,  363. 

when  not  notice  to,  364. 
statutes  authorizing  nomination  of  new  trustees  by,  374,  377-382. 
may  maintain  foreclosure  suit  when,  432,  433. 
provision  for  foreclosure  on  election  of  a  majority  of,  433. 
must  sue  in  behalf  of  all  the  bondholders,  434,  477. 
not  necessary  that  all  should  actually  join,  434. 
holding  bonds  as  collateral  may  sue,  437. 
to  whom  mortgage  is  made  directly  must  all  join,  437. 
not  necessary  parties  defendant  to  foreclosure  suit,  438. 
fraudulent  sale  by  will  be  set  aside,  645. 
may  become  purchasers  at  foreclosure  sale,  647. 
BONDS  which  are  a  charge  upon  the  property  are  equitable  mortgages,  75. 
should  be  fully  described  in  mortgage,  93. 
provision  in,  for  conversion  into  stock,  97. 
convertible  into  stock  after  limit  of  capital  is  reached,  97. 
Of  corporations  secured  bij  mortgage,  188-221. 
formalities  in  making  and  issuing,  188-196. 
680 


INDEX. 
Reference  is  to  Sections. 

BONDS  (continued). 
imply  a  seal,  189. 

how  far  formalities  as  to  making  are  binding,  190. 
■whether  stockholders'  vote  is  essential  to  issuing,  191. 
an  unusual  requirement  is  directory  only,  192. 
requirements  as  to  election  of  officers,  193. 
knowledge  of  irregularity  of  issue,  194. 
not  void  by  reason  of  being  secured  by  void  mortgage,  195. 
certificate  indorsed  upon,  construed  with,  196. 
Negotiability  of  corporate  bonds,  197-210. 
usually  made  negotiable  in  form,  197. 
although  under  seal,  198. 
although  overdue  coupons  are  attached,  199. 
although  convertible  into  stock,  200. 
not  negotiable  are  merely  choses  in  action,  201. 
referring  to  mortgage  affected  by  its  statements,  203. 
word  "consolidated"  puts  purchaser  upon  inquiry,  203. 
with  payee  in  blank  may  be  filled  by  holder,  204. 
subject  to  be  called  at  stated  times,  205. 
payable  to  "  assigns,"  206. 
rights  of  bondjide  purchaser  of,  207. 

when  taken  in  payment  for  goods,  208. 
when  pledged  for  loan  to  maker,  209. 
presumption  of  issue  simultaneously  with  mortgage,  210. 
Incomplete  and  altered,  211-216. 

not  entitled  to  privileges  of  negotiable  paper,  211. 
must  be  complete  when  issued,  212. 
place  of  payment  left  blank,  211,  212. 
over-issue  of,  213. 

numbering  of  gives  no  preference,  214. 
presumed  that  all  are  issued  at  same  time,  215. 
alteration  of  number  immaterial,  216. 
Remedies  upon,  217-221. 

allegations  when  money  was  borrowed  for  specified  purpose,  217. 
illegally  issued  cannot  be  enforced,  218. 
relief  in  equity  for  lost  or  destroyed,  219. 
liability  of  seller  of  void  bonds,  219. 
who  may  enforce  right  of  conversion  into  stock,  220. 
non-resident  stockholders  not  taxable,  221. 
taxation  of  bonds  of  road  lying  in  two  states,  221. 
Unsecured,  of  corporations,  S12  816. 
implied  power  of  corporations  to  issue,  312. 
issued  in  acknowledgment  of  corporate  debt,  318. 
statutory  or  debenture  bonds  in  England,  31  L. 
prohibition  against  issuing  n  '■.'•■  815. 

income  bonds  do  not  prevent  the  making  of  a  mortgage,  810. 
suit  at  law  upon  mortgage  bond  .  100. 

681 


INDEX. 

Reference  is  to  Sections. 

BRANCH  RAILROADS  do  not  pass  by  mortgage  of  main  line,  104. 
ma}'  be  covered  by  mortgage  of  after-acquired  property,  129. 

CALIFORNIA,  statute  authorizing  railroad  mortgages,  29. 

rolling  stock  is  personal  property  in,  172. 

constitutional  prohibition  of  loaning  state  credit,  234. 

statutory  provisions  respecting  municipal  aid  bonds,  234. 

enforcement  of  executions  against  railroads  in,  429. 

statute  giving  special  lien  upon  railroads,  584. 
CALLS  ON  STOCKHOLDERS  not  subject  to  mortgage  without  legislative 

authority,  103. 
CANAL  BOATS,  whether  they  pass  as  appurtenant  to  railroad,  107. 
CERTIFICATE  indorsed  on  mortgage  bonds  to  be  construed  with  them,  196. 
CHANGE  OF  ROUTE,  mortgage  covers,  105. 

statutes  respecting  in  Ohio  and  Iowa,  105. 

mortgage  of  after-acquired  property  may  cover,  130. 
CHARTER,  effect  of  forfeiture  on  a  mortgage,  .25. 

of  railroad  company  authorizing  municipal  aid  is  a  contract,  274. 
CHATTEL  MORTGAGE,  mortgage  of  rolling  stock  need  not  be  recorded  as, 

156. 
COLLATERAL  bonds  in  distribution  of  proceeds  of  foreclosure  sale,  639. 

for  what  amount  proof  in  bankruptcy  may  be  made,  692. 
COLORADO,  statute  authorizing  railroad  mortgages,  30. 

constitutional  prohibition  of  municipal  aid  to  private  corporations,  235. 

statute  giving  special  lien  upon  railroads,  585. 
COMMON  CARRIERS,  mortgage  trustees  operating  railroad  are,  370. 

whether  receivers  are  liable  as,  for  negligence  of  employees,  509-515. 

liability  of  trustees  in  possession  as,  556. 
COMPENSATION  of  receivers.     See  Receivers,  527-529. 
COMPROMISE  agreements  of  mortgage  creditors  of  corporations.     See  Re- 
organization, 614-624. 
CONDITIONS  precedent  to  granting  municipal  aid,  267-277. 

contained  in  municipal  subscriptions,  waiver  of,  279. 

as  to  amount  of  bonds  to  be  issued,  295. 
CONFIRMATION  by  legislature  of  mortgages  made  without  authority,  6-14. 
CONNECTICUT,  statute  authorizing  railroad  mortgages,  31. 

provisions  as  to  mortgages  of  rolling  stock  in,  173. 

statute  respecting  rights  of  railroad  mortgage  trustees,  382. 

statute  giving  special  lien  upon  railroads,  586. 
CONSIDERATION,  what  sufficient  for  upholding  a  mortgage,  84. 
CONSOLIDATION  of  railroad  companies,  effect  upon  jurisdiction,  415-420. 

whether  it  works  dissolution  of  old  companies,  416. 

of  stock  of  companies  does  not  make  them  one,  417. 

new  company  is  successor  of  old,  418. 

assumption  by  new  company  of  debts  of  old,  419. 

does  not  make  new  company  identical  with  old  as  regards  executory  con- 
tracts, 420. 

682 


INDEX. 

Reference  is  to  Sections. 
CONTRACTS,  though  payable  to  bearer,  not  necessarily  negotiable,  202. 
subsequent  to  mortgage  not  binding  upon  mortgagee,  566-568. 
for  carrying  not  binding  upon  mortgagee,  567. 
for  payment  of  rent  not  binding  upon  mortgagee,  568. 
CORPORATIONS,  having  no  public  functions  have  an  implied  power  to  mort- 
gage, 5. 
manufacturing,  may  mortgage  their  property,  5. 
steamship,  may  mortgage  their  property,  5. 
express  power  of  to  mortgage  negatives  implied  power,  6. 
unless  restrained  by  their  objects  may  mortgage  like  individuals,  19. 
may  borrow  as  individuals  do,  19. 
unless  restricted  as  to  purposes  or  amounts,  20. 
may  borrow  from  directors,  22. 

may  be  estopped  to  set  up  defence  of  ultra  vires,  23. 
generally  impose  formalities  in  making  and  issuing  securities,  190. 
formality  of  stockholders'  vote  for  issuing  bonds,  191. 
special  and  unusual  requirements  as  to  obligations,  192. 
requirements  as  to  election  of  officers,  193. 
Implied  power  to  issue  negotiable  paper,  306. 

in  England  decisions  against  such  power,  307. 
may  issue  accommodation  paper,  308. 
paper  given  to  prosecute  unauthorized  business,  309. 
Unsecured  bonds  of,  312-315. 
implied  power  to  issue,  312,  313. 
statutory  bonds  and  debentures  in  England,  314. 
prohibition  against  issuing  notes  for  circulation,  315. 
Jurisdiction  of  state  and  federal  courts  over,  406-414. 
amenable  to  process  only  in  state  where  created,  406. 
foreign  to  any  state  to  which  they  nowise  owe  their  existence,  407. 
may  be  made  answerable  to  suit  by  statute,  408. 

conclusively  presumed  to  be  citizens  of  the  state  of  incorporation,  409. 
citizenship  of,  based  on  that  of  corporators,  409. 
stockholders  presumed  to  be  citizens  of  state  of  incorporation,  409. 
existing  in  several  states,  subject  to  federal  jurisdiction,  412,  489. 

court  in  either  state  has  jurisdiction,  413. 
cannot  themselves  obtain  appointment  of  receivers  of,  479. 
not  liable  for  injuries  after  receiver  has  assumed  possession,  516. 
otherwise  if  receiver's  possession  is  not  exclusive,  517,  518. 
receivers  in  possession  not  agents  of,  520. 

organization  of  purchasers  at  foreclosure  sales  into  new,  661-684. 
COUPONS,  overdue  do  not  alone  discredil  a  bond,  199,  209. 
long, overdue  is  a  circumstance  of  suspicion,  199. 
in  what  terms  expressed,  317. 
may  be  Bigned  by  fac-simile  o£  autograph]  817. 
Negotiability  of,  320-326. 
to  bearer  are  in  effect  promissory  notes,  '■'<-"■ 
negotiable  although  payee  not  named,  821. 

688 


INDEX. 

Reference  is  to  Sections. 

COUPONS  (continued). 

detached  from  bonds  subject  to  rules  of  negotiable  paper,  322. 
are  still  a  lien  under  the  mortgage,  322. 

not  payable  to  bearer  or  order  are  not  negotiable,  323. 

overdue  subject  to  defences  and  equities,  324. 

when  considered  due,  325. 

entitled  to  days  of  grace,  326. 
Order  of  payment  of,  327-331. 

should  be  paid  in  order  they  fall  due,  327. 

overdue  entitled  to  no  priority,  328. 

taken  up  by  third  person  when  not  entitled  to  share  in  security,  329. 
entitled  to  payment  from  surplus,  330. 

when  a  transfer  rather  than  payment  presumed,  331. 
Overdue  interest  upon,  332-336. 

lost,  recovery  upon,  332. 

when  interest  upon  recoverable  without  presentation,  334. 
Suits  upon,  337-340. 

holder  may  sue  without  producing  bond,  337. 

when  authority  to  issue  should  be  alleged,  337. 

not  negotiable,  should  be  sued  in  name  of  bondholder,  338. 

when  they  import  no  promise  to  pay,  338. 

when  existence  of  net  revenues  should  be  alleged,  339. 

plea  of  statute  of  limitations,  340. 

when  statute  begins  to  run  against,  340. 

when  may  be  preferred  in  distribution  of  proceeds  of  foreclosure  sales, 
638. 

DAKOTA  TERRITORY,  statute  authorizing  railroad  mortgages,  32. 

provisions  as  to  mortgages  of  rolling  stock  in,  174. 

statute  giving  special  lien  upon  railroads,  587. 
DEBENTURE,  nature  and  form  of  used  in  England,  72. 

mortgages  not  accompanied  by  bonds,  102. 

bonds,  negotiability  of,  197. 
DEBT,  due  upon  any  default,  90. 

mortgagee  cannot  be  forced  to  receive  till  maturity,  91. 
Changes  inform  and  amount  of,  385. 

substitution  of  new  bonds,  385. 

amount  cannot  be  enlarged,  386. 

without  consent  of  subsequent  incumbrancers,  387. 

extension  of  time  of  payment,  388. 
DECREES  in  foreclosure  suits.     See  Foreclosure  Suits,  452-455. 
DEED  of  corporation,  who  may  execute,  84-88. 

seal  not  conclusive  that  corporation  executed  it,  85. 
DEFAULT,  provision  that  whole  debt  shall  become  due  upon,  90,  433. 
DEFENCES  to  foreclosure  suits.     See  Foreclosure  Suits,  449-451. 
DELAWARE,  no  general  statute  authorizing  railroad  mortgages,  33. 
DIRECTORS  may  loan  to  their  corporations  and  take  securities,  22. 

684 


INDEX. 

Reference  is  to  Sections. 

DIRECTORS  (continued). 

may  authorize  execution  of  corporate  mortgages,  84. 

may  purchase  at  foreclosure  sale,  Gil. 
DISTRIBUTION  of  proceeds  of  foreclosure  sale.     See  Foreclosure,  636— 

638. 
DISTRICT  OF  COLUMBIA,  statute  authorizing  railroad  mortgages,  84. 

EARNINGS    of   railroads  when  covered  by  mortgage.      See  Income,   114- 

120. 
EMINENT  DOMAIN,  lands  acquired  by  right  of  can  be  mortgaged  only  by 
statutory  authority,  3. 
lands  not  acquired  by  can  be  mortgaged,  12. 
EMPLOYEES,  equities  of  against  existing  mortgages,  557. 
grounds  upon  which  preference  is  given  to,  558. 
meritorious  character  of  claims  of,  559. 
claims  of  sometimes  assumed  as  matter  of  policy,  560. 
preference  never  given  to  as  a  legal  right,  561. 
EQUITABLE  MORTGAGES,  what  corporate  mortgages  are,  73-77. 
a  contract  to  give  a  mortgage  constitutes,  74. 
bonds  providing  that  they  shall  be  a  lien  are,  75. 
informal  agreements  may  be,  75. 
agreements  to  set  apart  specific  property  are,  76. 
must  arise  by  contract  or  necessary  implication,   77. 
EQUITIES  arising  subsequently  to  mortgages  do  not  affect  them,  557-572. 
employees  have  none  in  preference  to  mortgagees,  557-561. 
of  contractors  and  material-men  for  supplies,  562. 
subject  to  liens  at  law  in  distribution  of  proceeds  of  sale,  636. 
EXECUTION  of  corporate  mortgage,  84-88. 
directors  may  authorize,  84. 
must  be  in  name  of  the  corporation,  86. 
of  mortgage  with  usual  provisions,  implied  authority  for,  8D. 
EXECUTION,  LEVY  OF  upon  rolling  stock  not  allowed,  158-160. 
policy  of  the  law  as  to  in  Pennsylvania,  159,  160. 
in  Kentucky,  161. 
in  Tennessee,  162. 
in  New  Jersey,  163,  164. 
in  New  York,  165. 
in  Ohio,  167. 
in  New  Hampshire,  168. 
in  Massachusetts,  169,  177. 
franchises  and  property  of  railroad  company  not  liable  to  without  author- 
ity, 423. 
mortgage  does  not  exempt  personal  property  from,  424. 
what  mortgaged  property  exempted  from  execution,  125. 
what  is  proper  remedy  of  judgment  creditor,  428. 
statutory  provisions  regarding,  429. 
cannot  be  made  against  property  in  bands  of  reoeh 


INDEX. 
Reference  is  to  Sections. 

FIXTURES,  tohat  railroad  property  passes  as,  109-113. 

side  tracks  may  be,  109. 

material  for  use  in  repairing  road,  110. 

iron  safe  not  attached  to  freehold,  111. 

iron  planing-macliine,  111. 

tools  and  implements  in  workshops,  111. 

cast-off  articles,  broken  wheels,  rails,  &c.,  112. 

coal,  wood,  oil,  &c,  113. 
Rolling  stock  regarded  as,  154-163. 

actual  fastening  to  freehold  not  necessary,  155. 
FLORIDA,  statute  authorizing  railroad  mortgages,  35. 

provisions  as  to  mortgages  of  rolling  stock  in,  175. 

constitutional  prohibition  of  municipal  aid,  236. 

organization  of  purchasers  at  foreclosure  sale  into  new  corporation,  664. 
FORECLOSURE  of  railroad  mortgages  usually  effected  in  equity,  69. 

sale  of  railroad  running  through  several  states,  414. 
Sale  of  entire  properly,  625-628. 

when  deed  contemplates  but  one  sale,  625. 

special  provision  by  statute  for  sale  of  whole  property,  626. 

sale  of  specific  property  subject  to  a  separate  incumbrance,  627. 

sale  upon  default  in  interest  only,  628. 
Conduct  of  sale,  629-631. 

officer  conducting  sale  must  use  discretion,  629. 

mortgage  trustee  may  use  his  discretion  as  to  sale,  630. 

time  and  manner  of  making  in  Kansas,  631. 
What  franchises  pass  by,  632-635. 

franchise  to  be  a  corporation  does  not  pass,  632. 

land  occupied  by  railroad  but  not  paid  for  does  not  pass,  633. 
Distribution  of  proceeds  of  sale,  636-641. 

liens  at  law  have  precedence  of  equities,  636. 

every  bond  entitled  to  a, pro  rata  share,  637. 

whether  coupons  may  be  preferred,  638. 

rights  of  holders  of  bonds  as  collateral,  639. 

stockholders  entitled  to  nothing,  640. 

surplus  belongs  to  corporation,  641. 
Setting  aside  of  sale,  642-652. 

proceedings  for,  must  be  within  reasonable  time,  642. 

by  reason  of  fiduciary  relation  of  purchaser,  643. 

a  director  may  purchase,  644. 

made  by  bondholder  in  fraud  of  other  bondholders,  645. 

mortgage  trustee  cannot  properly  purchase,  646. 

bondholders  and  creditors  may  purchase,  647. 

made  by  conspiracy  of  officers  and  others,  648. 

for  fraud  in  notice,  649. 

sale  before  default  passes  only  mortgage  title,  650. 

parties  to  suit  to  set  aside  sale,  651. 

legislature  cannot  confirm  fraudulent  sale,  652. 

686 


INDEX. 

Reference  is  to  Sections. 

FORECLOSURE  SUIT,  court  first  assuming  jurisdiction  retains  it,  421. 
proceedings  in  second  suit  while  first  is  pending,  void,  422. 
Parties  plaintiff  in,  431-437. 

mortgagee  must  be  plaintiff  although  he  has  no  interest,  431. 
a  single  bondholder  may  be,  432. 

although  the  mortgage  provides  for  foreclosure  by  trustee,  433. 
not  necessary  that,  all  bondholders  join,  434. 
single  bondholder  must  sue  in  behalf  of  all,  433,  434. 
one  holding  bonds  as  collateral  may  maintain,  435. 
trustees  may  come  in  after  bondholders  have  filed  bill,  436. 
all  bondholders  to  whom  mortgage  is  made  directly  must  join,  437. 
Parties  defendant  in,  438-448. 

bondholders  are  not  necessary  parties,  438. 
whether  a  state  having  a  statutory  lien  should  be  joined,  439. 
whether  the  United  States  can  be  made  a  party,  440. 
a  subsequent  mortgagee  not  joined  is  not  bound,  441. 
subsequent  judgment  creditors  should  be  joined,  412. 
prior  mortgagees  not  proper  parties,  443. 

mortgagee  of  another  distinct  portion  of  the  road  not  a  necessary  party,  444. 
individual  stockholders  not  allowed  to  be  parties,  445. 
stockholders  may  intervene  in  cases  of  fraud,  446. 
questions  between  co-defendants  cannot  be  decided,  447. 
strangers  to  a  cause  cannot  be  heard  in  it,  448. 
Defences  to,  449-451. 

same  as  those  to  suits  upon  the  bonds,  449. 
one  who  has  assumed  a  mortgage  cannot  contest  it,  450. 
subsequent  contracts  of  the  company  cannot  be  set  up,  451. 
Decrees  in,  452-455. 

may  be  for  sale  of  railroad  situate  in  several  states,  452. 
by  consent  are  subject  to  control  of  court,  453. 
when  beyond  scope  of  bill  not  binding,  454. 
fixing  amount  due  are  final,  455. 
confirming  sale  are  final,  635. 

whether  precedence  will  be  given  to  proceedings  in  bankruptcy,  690. 
FORFEITURE    of   charter   on   failure  of  railroad  company  to  complete    ite 

road,  25. 
FORM  of  corporate  mortgages,  68-98. 
of  mortgage  deed  in  England,  72. 
of  bond  used  in  England,  72. 
of  assignment  of  debenture,  72. 
FORMALITIES  in  making  and  issuing  corporate  bonds,  188  196. 
FRANCHISES  OF  CORPORATIONS,  transferable  onlj  bj  legislative  au- 
thority, 1-25. 
legislative  authority  essential  t..  mortgage    of,  :;- 
authority  to  mortgage  need  nol  !»•  given  in  express  terms,  7. 
transferred  by  mortgage  do  nol  include  the  franchi  e  to  exi  t,  15. 
what  arc  included  in  -i  corporate  a  ,,;- 


INDEX. 

Reference  is  to  Sections. 

FRANCHISES  OF  CORPORATIONS  (continued). 

what  property  passes  as  appurtenant  to,  104. 

mortgage  trustees  in  possession  may  use,  365. 

not  subject  to  sale  on  execution  without  legislative  authority,  423. 

what  pass  by  foreclosure  sale,  632. 

what  right  of  way  passes  by  foreclosure  of  railroad,  633. 

effect  of  sale  of  under  foreclosure,  653-660. 
FRAUD  in  foreclosure  sales  ground  for  setting  aside,  642-652. 

GEORGIA,  no  general  statute  authorizing  railroad  mortgages,  36. 

constitutional  prohibition  of  municipal  aid  to  corporations,  237. 

the  enforcement  of  executions  against  railroads  in,  429. 

statute  giving  special  lien  upon  railroads,  588. 
GRACE,  interest  coupons  entitled  to,  326. 
GUARANTY,  nature  of  the  contract,  341-349. 

is  a  secondary  and  contingent  obligation,  341,  347. 

the  degree  of  diligence  required  of  holder,  342. 

of  principal  debt  and  of  its  incident  interest,  343. 

consideration  for,  343. 

principal  creditors  entitled  to  benefit  of,  344. 

of  negotiable  bond,  is  itself  negotiable,  345. 

when  not  provable  in  bankruptcy,  346. 
or  in  schemes  of  liquidation,  346. 
corporations  cannot  enter  into  without  authority,  350. 

authority  for  need  not  be  expressly  conferred,  351. 

right  to  enter  into  may  be  implied,  352. 

railroad  company  may  make  of  municipal  aid  bonds,  354. 

when  a  representation  of  in  bonds  of  another  company  binding,  355. 

when  corporation  estopped  to  claim  the  contract  ultra  vires,  356. 

HOLDERS  of  negotiable  bonds  of  municipalities,  rights  of.    See  Purchasers, 
287-299. 

ILLINOIS,  statute  authorizing  railroad  mortgages,  37. 

doctrine  as  to  nature  of  rolling  stock  in,  157,  171. 

constitutional  prohibition  of  municipal  aid  to  corporations,  238. 

statute  giving  special  lien  upon  railroads,  589. 
INCOME,  when  covered  by  railroad  mortgage,  114-120. 

not  while  company  i-emains  in  possession,  115. 

subject  to  garnishment  while  company  in  possession,  115. 

future,  not  subject  to  mortgage  as  against  creditors,  116. 

only  net,  covered  by  mortgage  while  mortgagor  in  possession,  117. 

in  hands  of  treasurer  when  possession  is  taken,  118. 

in  hands  of  station  agent,  118. 

mortgage  held  to  cover  in  exceptional  cases,  119. 

estimate  of  for  a  section  of  a  road,  120. 

receiver  may  be  appointed  to  secure,  468. 

688 


INDEX. 

Reference  is  to  Sections. 
INCOMPLETE  BONDS.  See  Bonds,  211-216. 
INDIANA,  statute  authorizing  railroad  mortgages,  38. 

constitutional  prohibition  of  county  aid  to  corporations,  239. 
statutory  provisions  for  township  aid  to  railroads.  239. 
statute  giving  special  lien  upon  railroads.  590. 
statute  relating  to  foreclosure  sales  of  railroads,  626. 

organization  of  purchasers  of  railroad  at  foreclosure  sale  into  new  corpora- 
tion, 666. 
INDORSEMENT,  nature  of  contract  of,  341. 
how  it  differs  from  a  guaranty,  341. 
of  railroad  bond,  348. 

presumed  regular  in  hands  of  bona  fide  holder,  349. 
corporations  cannot  enter  into  without  authority,  350. 
of  securities  taken  in  usual  course  of  business,  353. 
INJUNCTION  against  suits  in  foreign  courts  against  receivers,  500. 
INSOLVENCY  proceedings  against  railroad  companies.     See  Bankruptcy, 

685-694. 
INTEREST,  the  contract  to  pay,  317-320. 
in  what  terms  expressed,  317. 
overdue  entitled  to  no  priority,  328. 
recoverable  on  overdue  coupons,  332. 
without  demand  of  payment,  332. 
upon  called  bonds,  333. 
none  upon  coupons  when  there  were  funds  at  place  of  payment,  334. 

when  bondholder  absent  from  country,  335. 
rate  of  interest  after  maturity  of  bond  or  coupon,  336. 
on  purchase  money  at  foreclosure  sale,  634. 
INTERNAL  IMPROVEMENTS,  what  may  be  aided  by  municipalities,  225. 
IOWA,  statute  authorizing  railroad  mortgages,  39. 
provisions  as  to  mortgages  of  rolling  stock  in,  176. 
decisions  against  municipal  aid  bonds  in,  229. 
statutory  provisions  for  granting  municipal  aid  to  railroads,  240. 
statute  providing  for  liens  attaching  from  commencement  of   building,  577, 

578. 
statute  giving  special  lien  upon  railroads,  591. 

JUDGMENTS,  against  receivers  for  injuries  and  losses  not  preferred  to  mort- 
gages, 570. 
forgoodslost  in  transportation  when  regarded  as  an  expen  e  of  manage- 
ment, 571. 
made  subject  to  mortgages  by  statute  in  England,  572. 
mortgage  has  priority  of  subsequent,  618. 
JURISDICTION,  of  stair  and  federal  courts  of  suiU  porationa,  106. 

foreign  corporation  not  amenable  to  process,  106. 
what  corporations  are  foreign  to  the  jurisdiction,  407. 
foreign  corporations  may  by  statute  I"-  made  answerable  to  suit,  108. 
aship  of  corporations  as  regards  the  federal  courts,  109. 
u 


INDEX. 

Reference  is  to  Sections. 

JURISDICTION  (continued). 

doctrine  of  citizenship  based  on  that  of  the  corporators,  409. 

for  the  purpose  of  federal  jurisdiction  a  corporation  is  a  citizen  of  the  state 
that  created  it,  409. 

federal  courts  have  jurisdiction  of  suits  against  municipalities,  410. 
none  of  suits  between  states  and  their  own  corporations,  411. 

of  suits  against  railroad  companies  chartered  by  several  states,  412. 
court  in  either  state  has  jurisdiction  of  entire  line,  413. 

through  jurisdiction  of  the  mortgagor  and  mortgagee,  court  may  compel 
sale  of  entire  line,  414. 

independent  suits  may  be  prosecuted  in  each  state,  414. 
Effect  of  consolidation  of  railroad  companies  upon,  415-420. 

consolidated  company  deemed  the  same  as  each  of  the  old,  415. 

two  states  may  by  concurrent  legislation  create  one  corporate  body,  415. 

whether  a  consolidation  works  a  dissolution  of  the  old  companies,  416. 

effect  of  consolidation  of  stock  of  companies,  417. 

consolidated  company  is  the  successor  of  each  of  the  old  companies,  418. 

when  new  company  assumes  the  debts  of  the  old,  419. 
Cases  of  concurrent  jurisdiction,  421,  422. 

court  which  first  assumes  jurisdiction  retains  it,  421. 

cannot  be  taken  away  by  subsequent  proceedings  in  another  court,  421. 

proceedings  in  second  suit  void,  422. 
Of  receivers.     See  Receivers,  483-492. 
of  court  over  purchasers  at  foreclosure  sales,  635. 
in  bankruptcy  of  railroads  organized  in  several  states,  688. 

KANSAS,  statute  authorizing  railroad  mortgages,  40. 

statute  authorizing  municipal  aid  to  railroads,  241. 

statute  giving  special  lien  upon  railroads,  592. 

statute  providing  for  sale  of  railroad  as  an  entirety,  626. 

statute  as  to  time  and  manner  of  foreclosure  sale  of  railroads,  631. 

organization  of  purchasers  at  foreclosure  sale  into  new  corporation,  667. 
KENTUCKY,  no  general  law  authorizing  railroad  mortgages,  41. 

rolling  stock  not  subject  to  execution  in,  161. 

provisions  for  enforcing  executions  against  railroads  in,  429. 

statute  giving  special  lien  upon  railroads,  593. 

statutory  provisions  as  to  foreclosure  sale  of  railroad,  626. 

statute  organizing  purchasers  at  foreclosure  sale  into  corporation,  668. 

LAND  GRANTS  may  be  mortgaged  without  statutory  authority,  12. 

mortgage  of  by  corporation  having  no  power  to  accept,  134. 

not  yet  earned,  mortgage  of,  135. 
LANDS  not  connected  with  railroad,  whether  covered  by  mortgage,  106. 

after-acquired,  when  not  within  terms  of  mortgage,  132. 
LEASE  may  be  included  in  mortgage  of  after-acquired  property,  136. 

mortgage  trustees  in  possession  of  railroad  may  make,  36  7. 

subsequent  to  mortgage  not  binding  upon  mortgagee,  566-568. 

prior  to  mortgage,  when  binding  upon  mortgagee,  569. 

690 


INDEX. 

Reference  is  to  Sections. 

LEGISLATIVE  AUTHORITY  essential  to  a  mortgage  of  franchises,  1-25. 
the  English  doctrine,  1. 
the  American  docti'ine,  2. 
doctrine  denied  in  Maine,  3  n.,  19. 
railroad  companies  within  the  rule,  3. 
other  companies  having  puhlic  duties  within  the  rule,  3. 
general  authority  to  convey  does  not  give  authority  to  mortgage,  4. 
corporations  having  no  public  functions  not  within  the  rule,  5. 
expressly  conferred  negatives  implied  authority,  6. 
need  not  be  given  in  express  terms,  7. 
to  transfer  property  confers  power  to  mortgage,  7. 
may  apply  to  property  and  not  to  franchises,  8. 
scope  and  purpose  of  power  must  be  regarded,  9. 
for  the  purpose  of  constructing  a  railroad  gives  no  power  to  secure  the 

debt  of  another,  10. 
necessary  for  mortgages  of  corporate  property,  when,  11. 
not  necessary  for  mortgaging  surplus  land,  12. 
to  mortgage  authorizes  a  mortgage  of  part  of  a  road,  13. 
mortgage  without  does  not  work  dissolution  of  corporation,  15. 
less  stringent  rule  as  to  the  power  to  mortgage,  17. 
the  rule  denied  in  a  few  instances,  18. 
coupled  with  a  condition  for  the  benefit  of  the  state,  24. 
forfeitui'e  of  charter  of  corporation,  25. 
General  statutes  authorizing  railroad  mortgages,  2G-67. 
essential  to  mortgages  of  calls  on  shareholders,  103. 
essential  for  issuing  municipal  aid  bonds,  222-283. 
to  municipalities  to  issue  bonds  for  public  purposes,  223. 

for  internal  improvements,  225. 
essential  to  issuing  municipal  bonds  for  extraneous  objects,  226. 

in  aid  of  railroads,  226. 
may  confer  power  to  municipalities  to  aid  railroads,  227. 
required  for  indorsements  and  guaranties  by  corporations,  350. 

need  not  be  conferred  by  express  statute,  351. 
cannot  confirm  fraudulent  foreclosure  sale,  652. 
LESSEE  in  possession  should  be  party  to  suit  for  appointment  of  receiver, 

478. 
LIENS  affecting  priority  of  railroad  mortgages,  573-613. 
application  of  general  lien  laws  to  railroads,  5  73-5  78. 
railroad  bridge  not  a  building,  5  74. 

not  an  improvement,  575. 
meaning  of  terms  structure,  erection,  improvement,  576. 
attaching  from  commencement  of  the  building,  .>77. 

in  case  of  repairs,  578. 
Special  lien  laws  applicable  to  railroads^  579  582. 
within  scope  of  legislature  to  provide,  57'J. 
who  is  a  laborer,  580. 
rights  conferred  arc  personal,  581. 

691 


INDEX. 

Reference  is  to  Sections. 

LIENS  (continued). 

none  for  advances  of  money  to  laborers,  582. 
Statutes  of  the  several  states  giving  liens  upon  railroads,  583-610. 
Of  vendors,  611. 

vendors  with   notice  of  mortgage  covering  after-acquired  property  have 

none,  611. 
of  transportation  subscriptions,  612. 
By  judgment,  subsequent  to  mortgages,  613. 
LLOYD'S  BONDS,  nature  and  validity  of,  21. 
LOST  BONDS,  relief  in  equity  for,  219. 

payment  of  indemnity  for,  389. 
LOUISIANA,  statute  authorizing  railroad  mortgages,  42. 

statute  authorizing  municipal  aid  to  internal  improvements,  242. 

MAINE,  statute  authorizing  railroad  mortgages,  43. 

statute  authorizing  municipal  aid  to  railroads,  243. 

statute  respecting  duties  and  choice  of  mortgage  trustees,  377. 

statute  giving  security  for  labor  upon  railroads,  594. 

statute  organizing  purchasers  at  foreclosure  sale  of  railroad  into  corpora- 
tion, 669. 
MANDAMUS,  the  remedy  to  compel  payment  by  municipalities,  302. 

does  not  confer  power,  but  enforces  exercise  of  it,  303. 

by  federal  court  cannot  be  interfered  with  by  state,  304. 

municipal  officers  disobeying  liable  in  damages,  304. 
MARYLAND,  statute  authorizing  railroad  mortgages,  44. 

constitutional  prohibition  of  county  aid,  244. 

lien  laws  as  affecting  railroads,  595. 
MASSACHUSETTS,  statute  authorizing  railroad  mortgages,  45. 

rolling  stock  subject  to  attachment  in,  169,  1  77. 

statute  authorizing  municipal  aid  to  railroads,  245. 

statute  respecting  choice  and  duties  of  mortgage  trustees,  380. 

statute  giving  special  lien  upon  railroads,  596. 
MATURITY,  meaning  of  word  as  applied  to  bonds,  92. 
MICHIGAN,  statute  authorizing  railroad  mortgages,  46. 

decisions  against  municipal  aid  bonds  in,  229. 

statute  authorizing  municipal  aid  to  railroads,  246. 

statute  providing  for  securing  laborers  upon  railroads,  597. 

statute  organizing  purchasers  of  railroad  at  foreclosure  sale  into  corpora- 
tion, 671. 
MINNESOTA,  statute  authorizing  railroad  mortgages,  47. 

provisions  as  to  mortgages  of  rolling  stock  in,  17  7. 

constitutional  prohibition  of  municipal  aid,  247. 

personal  property  of  railroad  may  be  seized  on  execution,  426. 

statute  providing  security  for  laborers  upon  railroads,  598. 

statute  organizing  purchasers  at  foreclosure  sale  of  railroad  into  new  cor- 
poration, 672. 
MISSISSIPPI,  no  general  statute  authorizing  railroad  mortgages,  48. 

692 


INDEX. 

Reference  is  to  Sections. 

MISSISSIPPI  (continued). 

constitutional  prohibition  of  municipal  aid,  248. 

enforcement  of  executions  against  railroads  in,  429. 

organization  of  purchasers  at  foreclosure  sale  into  corporation,  6  73. 
MISSOURI,  statute  authorizing  railroad  mortgages,  49. 

rolling  stock  is  personal  property  in,  171. 

constitutional  prohibition  of  municipal  aid,  249. 

statute  providing  special  lien  upon  railroads,  599. 
MONTAXA  TERRITORY,  statute  authorizing  railroad  mortgages,  50. 

provisions  as  to  mortgages  of  rolling  stock,  179. 
MORTGAGEE,  in  a  strict  mortgage  holds  the  legal  title,  71. 

in  statutory  mortgage  substituted  by  agreement,  83. 

cannot  be  forced  to  receive  payment  till  maturity,  91. 

necessary  plaintiff  to  foreclosure  suit  though  having  no  interest,  431. 

subsequent  not  bound  unless  party  to  foreclosure,  111. 

prior,  neither  necessary  or  proper  parties  to  foreclosure  suit.  1  13. 

not  affected  by  judgment  against  receiver  for  negligence  of  employees,  515. 

priority  of  right  over  subsequent  equities,  557-572. 
MORTGAGES   OF   CORPORATE   PROPERTY    AND   FRA^XTIISES, 
authority  to  make,  1-25. 

may  be  valid  in  part  and  in  part  void,  8,  10. 

made  without  authority  may  be  good  as  an  equitable  charge,  9. 

must  be  within  the  terms  of  the  authority  to  mortgage,  10. 

statutory  and  general  power  to  mortgage,  10. 

of  corporate  property  essential  to  the  use  of  the  franchise,  11. 

of  land  not  acquired  by  right  of  eminent  domain,  12. 

of  part  of  a  railroad,  13. 

made  without  authority  may  be  ratified,  G,  14. 

a  less  stringent  rule  as  to  authority  to  make,  17. 

the  necessity  of  statutory  authority  denied  in  a  few  instances,  18. 

may  be  void  while  the  debts  secured  are  valid,  20. 
Form  and  construction  of,  2G-67. 

statutes  authorizing,  of  railroads  in  the  several  states,  68-98. 

usually  in  form  of  trust  deeds,  68. 

informally  executed  give  equitable  rights,  73. 

execution  of  may  be  authorized  by  directors,  84. 

ratification  of,  88. 

should  fully  describe  the  bonds  secured,  93. 

reservation  of  power  to  dispose  of  a  iperty,  94. 

to  create  a  prior  lien,  95. 
provision  for  payment  of  taxes  in,  96. 
reformation  of.  98. 
Property  covered  by,  99-120. 
of  the  under!  iking,  99   i"-':. 

equitable  ri<_rhl<  of   action  may  be  Bubjei 

cover  wli;it  personal  property  as  fixtures,  I":1   i  18. 
cover  income  in  wh 

698 


INDEX. 

Reference  is  to  Sections. 

MORTGAGES   OF   CORPORATE   PROPERTY,  ETC.  (continued). 
Of  after-acquired  property,  121-145. 
at  law,  121. 
in  equity,  122. 
may  be  limited  as  regards  after-acquired  property,  131. 
when  after-acquired  land  not  within  terms  of,  132. 
when  after-acquired  personalty  not  within  terms  of,  133. 
invalidity  of  does  not  render  void  the  bonds  secured,  195. 
a  general  creditor  cannot  prevent  execution  of,  403. 
MUNICIPAL  BONDS  in  aid  of  private  corporations,  power  to  issue,  222- 
230. 
no  implied  power  to  issue,  222,  283. 
purposes  for  which  legislature  may  confer  power,  223. 
power  to  tax  can  be  conferred  only  for  public  purposes,  224. 
under  statutes  authorizing  internal  improvements,  225. 
cannot  be  issued  without  legislative  authority,  226. 
may  be  authorized  in  favor  of  railroads,  227. 
public  policy  determines  public  use,  228. 
few  decisions  that  a  railroad  cannot  receive,  229. 
want  of  power  to  issue  always  open  to  inquiry,  230. 
Constitutional  and  statutory  provisions  of  the  several  states  respecting,  231-266. 
Conditions  precedent  to  granting,  267-277. 
effect  of  non-compliance  with,  267. 
validity  between  parties  depends  upon  election,  268. 
meaning  of  two  thirds  of  qualified  voters,  269. 
effect  of  popular  vote  in  favor  of  aid,  270. 
actual  subscription  upon  books  not  necessary,  271. 
subscription  released  by  change  of  organization,  272. 
whether  prior  location  of  road  is  a  condition,  273. 
right  conferred  by  charter  cannot  be  taken  away,  274. 
power  to  subscribe  annulled  by  constitutional  provision,  275. 
completed  subscriptions  not  affected  by  Constitution,  276. 
corporate  existence  of  railroad  cannot  be  questioned,  277. 
nor  that  of  municipality,  277. 
Ratification  of ,  irregularly  issued,  278-282. 
legalized  by  subsequent  legislation,  278. 
municipality  may  waive  conditions,  279. 

may  be  estopped  by  course  of  dealing,  280. 
by  its  acts,  281. 
by  payment  of  interest,  282. 
by  holding  stock,  282. 
Negotiability  of  283-286. 
legislative  authority  essential  to,  283. 
of  warrants  and  certificates,  283. 
confer  rights  of  ordinary  negotiable  paper,  284. 
when  name  of  payee  is  blank,  285. 
recital  of  purpose  of  issue  does  not  affect,  286. 

694 


INDEX. 

Reference  is  to  Sections. 
MUNICIPAL   BONDS  (continued). 

Rights  of  bond  fide  holders  of,  287-299. 
how  distinguished  from  bonds  of  private  corporations,  2S7. 
misconduct  of  municipal  agents  docs  not  affect,  288. 
three  important  rules  governing,  289. 

violation  of  instructions  by  municipal  officers  does  not  affect,  290. 
purchaser  only  bound  to  see  that  there  was  legislative  authority,  291. 
a  recital  in  bonds  of  compliance  with  condition  conclusive,  292. 
recital  of  authority  estops  the  setting  up  of  defence,  293. 
recital  of  authority  is  sufficient  basis  for  purchaser,  294. 
condition  as  to  amount  of  bonds  to  be  issued,  295. 
when  declared  absolutely  void  by  statute,  296. 
when  the  bonds  recite  facts  inconsistent  with  statute,  297. 
when  issued  in  excess  of  legislative  authority,  298. 
purchaser  with  notice  of  irregularities  cannot  claim  protection,  299. 
Enforcement  of,  300-305. 

provision  for  taxation  becomes  a  part  of  the  contract,  300. 

cannot  be  impaired  by  legislation,  301. 
mandamus  the  remedy  to  compel  levy  of  taxes,  302. 

does  not  confer  power,  but  enforces  the  exercise  of  it,  303. 
writ  from  federal  court  cannot  be  interfered  with  by  state,  304. 
municipal  officers  who  disobey  writ  are  liable  in  damages,  304. 
remedy  not  limited  to  the  special  tax  provided,  305. 
MUNICIPAL  CORPORATIONS,  subject  to  suit  in  federal  courts,  410. 

NEBRASKA,  statute  authorizing  railroad  mortgages,  51. 
rolling  stock  is  personal  property  in,  171. 
provisions  as  to  recording  railroad  mortgages  in,  180. 
constitutional  prohibition  of  municipal  aid,  250. 
NEGOTIABILITY  of  corporate  bonds,  197-210. 

of  scrip-certificates  of  government  loans,  197,  205. 
of  bonds  under  seal,  198. 
of  bonds  convertible  into  stock,  200. 
of  contracts  to  bearer,  201. 
of  bonds  in  blank,  204. 
of  bonds  subject  to  call,  205. 
of  bonds  payable  to  "  assigns,"  206. 
Of  incomplete  and  altered  bonds,  211-210. 
■ted  by  uncertainty  of  amount,  211. 
when  place  of  payment  i<  lefl  blank,  211,  212. 
effect  of  over-issue  of  bonds  upon,  218. 
higher  numbers  give  no  preference,  21  1. 
Of  municipal  !86. 

municipal  warrants  and  orders, 
municipal  bonds  to  bearers,  28  I. 

with  blank  for  paj  i 
recital  of  purpose  of  issue  I  - 

695 


INDEX. 

Reference  is  to  Sections. 

NEGOTIABILITY  (continued). 
Of  interest  coupons,  320-326. 

when  not  made  payable  to  a  particular  person,  321. 

when  detached  from  the  bonds,  322. 

not  payable  to  bearer  or  order  not  negotiable,  323. 

overdue  subject  to  defences  and  equities,  324. 

entitled  to  days  of  grace,  32G. 
Of  receivers'  certificates,  545,  546. 
NET  EARNINGS,  meaning  of  term,  624. 
NEVADA,  statute  authorizing  railroad  mortgages,  52. 

constitutional  prohibition  of  municipal  aid,  251. 

statute  providing  for  special  lien  upon  railroads,  600. 
NEW  HAMPSHIRE,  statute  authorizing  railroad  mortgages,  53. 

legal  nature  of  rolling  stock  in,  168. 

statute  against  municipal  aid  to  corporations,  252. 

statute  respecting  duties  and  choice  of  mortgage  trustees,  378. 

statute  giving  special  lien  upon  railroads,  601. 
NEW  JERSEY,  statute  authorizing  railroad  mortgages,  54. 

nature  of  rolling  stock  in,  163,  164. 

provisions  as  to  recording  railroad  mortgages  in,  181. 

constitutional  prohibition  of  loans  of  state  credit,  254. 

provisions  for  receivers  of  insolvent  corporation,  469. 

provisions  for  receivers  to  operate  railroads,  470. 

statute  giving  laborers  of  insolvent  companies  a  lien,  581. 

statute  giving  lien  and  security  to  laborers  upon  railroads,  602. 

statute  organizing  purchasers  at  foreclosure  sale  into    new   corporation, 
674. 
NEW  MEXICO  TERRITORY,  statute  authorizing  railroad  mortgages,  55. 
NEW  YORK,  statute  authorizing  railroad  mortgages,  56. 

legal  nature  of  rolling  stock  in,  165,  166. 

provisions  as  to  recording  railroad  mortgages,  182. 

decisions  against  municipal  aid  bonds  in,  229. 

constitutional  prohibition  of  municipal  aid,  255. 

statute,  regarding  redemption  of  railroad  mortgages,  397. 

provisions  for  enforcing  executions  against  railroads  in,  429. 

statute  giving  special  lien  upon  railroads,  603. 

statute  relating  to  foreclosure  sales  of  railroad,  626. 

statute  organizing  purchasers  of  railroad  at  foreclosure  sale  into  corpora- 
tion, 675. 
NORTH  CAROLINA,  statute  authorizing  railroad  mortgages,  57. 

statute  authorizing  municipal  aid  to  railroads,  256. 

statute  protecting  laborers  upon  railroads,  604. 
NOTICE  to  trustees  of  an  incumbrance  affects  the  bondholders,  73. 

of  irregularities  in  the  issue  of  corporate  securities,  194. 

to  trustees  when  notice  to  bondholders,  363. 
when  not,  364. 

fraudulent,  of  foreclosure  sale,  649. 

696 


INDEX. 

Reference  is  to  Sections. 

NUMBERS  upon  bonds  not  a  material  part  of  them,  214. 
alteration  of  immaterial,  216. 

OHIO,  statute  authorizing  railroad  mortgages,  58. 

legal  nature  of  rolling  stock  in,  167. 

provisions  as  to  recording  railroad  mortgages  in,  188. 

constitutional  prohibition  of  municipal  aid  to  corporations,  2 -">  7 . 

statute  giving  laborers  liens  upon  railroads,  005. 

statute  incorporating  purchasers  of  railroads  at  foreclosure  sale,  676. 
OREGON,  no  general  statute  authorizing  railroad  mortgages,  59. 

constitutional  prohibition  of  municipal  aid,  258. 

PARTIES,  plaintiff  and  defendant.     Sec  FORECLOSURE   Suit,  131-448. 
PAYMENT,  stipulation  for  in  gold  or  currency,  383,  384. 

under  legal  tender  acts  undertaking  to  pay  in  gold  must  be  express,  384. 
Of  lost  bonds,  389. 

indemnity  for,  389. 

of  mortgage  by  mistake  of  facts,  remedy  for,  391. 
PENNSYLVANIA,  statute  authorizing  railroad  mortgages,  60. 

rollincr  stock  not  subject  to  execution  in,  159,  160. 

constitutional  prohibition  of  municipal  aid,  259. 

provisions  for  enforcing  executions  against  railroads  in,  429. 

statute  protecting  laborers  upon  railroads,  606. 

statute  organizing  purchasers  of  railroad  at  foreclosure  sale  into  corpora- 
tion, 677. 
PLEDGE  of  negotiable  bonds,  rights  of  holder  of,  209. 
POSSESSION,  Court  of  Equity  may  put  trustees  in,  101. 

must  be  taken  of  a  railroad  as  an  entirety.  401. 
POWER  of  ordinary  corporations  to  mortgage  their  property  implied,  5. 

express  negatives  implied,  6. 

to  mortgage  need  not  be  given  in  express  terms,  7. 

scope  and  purpose  of  must  be  regarded,  9,  10. 

to  mortgage  land  not  acquired  by  right  of  eminent  domain.  12. 

of  officer  to  borrow  includes  power  to  pledge  bonds  as  security, 
POWER  OF  SALE  usual  in  railroad  mortgages,  69. 

indefiniteness  in  will  render  void,  70. 

is  a  cumulative  remedy,  399. 

■whether  it  can  be  made  exclusive  remedy,  399. 
PREFERRED  STOCK,  AND  DIVIDENDS,  meaning  of  terms,  623,  624. 
PREFERRED    STOCKHOLDERS,  rights  oi  ibsequenl  mort- 

i  9. 

entitled  to  have  deficiencies  of  dividends  made  up,  wh 

rule  fur  ascertaining  profits  for  making  dividi 

po  ition  of  as  parti<  -  to  schemt  ;anization,  622. 

meaning  of  net  >  arnings,  62  I. 
PRESIDENT  OF(  ORPOR  ^TI  ON,  authority  to  borrow  and  Ity,  85. 

irithoul  authority  give  a  a 


INDEX. 

Reference  is  to  Sections. 

PRIORITY  of  mortgage  to  which  another  is  made  subject,  73,  75. 
mortgage  trustees  cannot  assent  to,  of  unsecured  debts,  359. 
not  affected  by  appointment  of  receivers,  515. 
Of  receivers'  certificates  and  debts,  539-544. 
Of  mortgage  lien,  not  affected  by  subsequent  equities,  557-572. 
employees  have  none  except  by  force  of  statute,  557. 
grounds  on  which  employees  have  been  given,  558,  559. 
sometimes  given  as  matter  of  policy,  560. 

can  be  given  to  employees  only  by  consent  of  mortgagees,  561. 
contractors  and  material-men  not  entitled  to,  562. 

junior  mortgagee  not  entitled  to  for  means  furnished  to  build  road,  563. 
none  for  materials  furnished  insolvent  road,  564. 
none  for  advances  made  by  officers  of  company,  565. 
subsequent  contracts  and  loans  have  no,  568,  569. 
judgments  against  receivers  have  no,  570-572. 
Of  railroad  mortgages  as  affected  by  liens,  573-613. 

of  railroad  mortgages  as  affected  by  schemes  of  reorganization,  614-624. 
as  between  preferred  stockholders  and  subsequent  mortgagees,  619. 
PROMISSORY  NOTES  of  corporations,  306-311. 

private  corporations  have  implied  authority  to  issue,  306. 

English  decisions  to  the  contrary,  307. 
may  issue  accommodation  paper,  308. 

paper  given  for  the  prosecution  of  unauthorized  business,  309. 
holder  bound  by  notice  of  improper  issue,  310. 
negotiable  though  under  corporate  seal,  311. 
signed  by  officers  for  the  corporation,  311. 
PROPERTY,  what  the  word  covers,  80,  81. 
PURCHASERS  of  negotiable  bonds  before  due,  rights  of,  207. 
in  good  faith  of  stolen  bonds,  207. 
can  recover  of  maker  in  full,  208. 
presumed  to  hold  for  value,  208. 
of  bonds  pledged  for  loans,  209. 
not  put  upon  inquiry  whether  bonds  and  mortgage  are  simultaneous,  210. 
Of  negotiable  bonds  of  municipalities,  287-299. 
in  good  faith  not  affected  by  fraud  of  officers,  288. 
though  officers  violated  instructions,  290. 

need  not  look  beyond  authority  of  municipality  to  issue,  291. 
of  negotiable  paper  of  corporations  with  notice  of  improper  issue,  310. 
at  foreclosure  sale  subjects  himself  to  jurisdiction  of  court,  635. 
at  foreclosure  sale,  fiduciary  relation  of,  643. 
parties  to  fraudulent  sale  under  foreclosure,  648. 
Rights  of  under  foreclosure  sales  of  railroads,  653-684. 
have  no  privity  with  old  corporation,  653. 
do  not  continue  the  old  corporation,  654. 
the  old  corporation  does  not  vest  in,  654. 
not  liable  for  debts  of  old  corporation,  655. 
have  the  right  of  purchasers  under  an  ordinary  mortgage,  655. 

698 


INDEX. 

Reference  is  to  Sections. 
PURCHASERS  (continued). 

when  liable  for  damages  occurring  before  confirmation  of  sale,  G56. 
when  assumption  of  debts  of  old  corporation  a  condition  precedent,  657. 
wbat  proof  of  assumption  of  old  debts  required,  658. 
acquire  an  exemption  from  taxes  belonging  to  the  old  corporation,  660. 
Organization  of  into  new  corporation,  661-t^  1. 
■whether  they  can  operate  road  as  individuals,  661. 

statutes  of  the  several  states  for  organizing  into  new  corporations,  662- 
684. 

RAILROAD  with  its  franchises  regarded  as  an  entire  thing,  124. 
doctrine  of  entirety  as  affecting  after-acquired  property,  124. 
rests  upon  authority  of  a  few  cases,  125. 
not  generally  supported,  126. 
not  applicable  to  mortgages  of  divisions  of,  127. 
RAILROAD    COMPANIES  cannot  mortgage  franchises  or  property  without 
legislative  authority,  1-25. 
because  they  have  duties  to  the  public,  3. 

general  authority  to  convey  does  not  give  authority  to  mortgage,  4. 
must  exercise  power  to  mortgage  for  the  purposes  for  which  it  is  given, 

10. 
do  not  mortgage  the  franchise  to  exist  as  corporation,  15. 
may  issue  negotiable  certificates  to  contractors,  19. 
statutes  authorizing  mortgages  by,  26-6  7. 
change  of  route  of,  105. 
not  liable  as  common  carriers  after  receiver  has  taken  possession,  516- 

519. 
receivers  not  agents  of,  520. 
RAILROAD  MORTGAGES,  legislative  authority  essential  for  making,  1-25. 
statutory  provisions  authorizing,  26-6  7. 
form  aud  construction  of,  68-98. 
property  covered  by,  99-120. 
of  the  undertaking,  99-103. 

do  not  cover  woodland  not  connected  with  road,  106. 
cover  what  personal  property  as  fixtures,  109-1  13. 
cover  tolls  and  income,  when.  Ill    1  20. 
Of  after-acquired  property,  121    L45. 
may  properly  include  after-acquired  property,  L28. 
what  terms  will  include  after-acquired  property,  128. 
when  after-acquired  land  ooi  within  terms  of,  132. 
when  after-acquired  personalty  nol  within  terms  ol 
of  land  grant  which  corporation  has  no  power  to  accept,  184. 
of  land  grant  not  yet  earned. 
Of  after-acquired  rolling  stock,  i  17. 

mav  be  made  before  road  is  built,  1 17,  1 18. 
cover  rolling  stock  without  special  mention,  l  19. 
attach  subject  to  existing  liens  upon  it,  151. 

oyy 


INDEX. 

Reference  is  to  Sections. 
KAILS  laid  down  are  fixtures  when,  109. 

upon  track  for  repairing  are  fixtures,  110. 

not  laid  when  covered  by  mortgage  of  after-acquired  property,  139. 
RATIFICATION.     See  Confirmation. 

Of  mortgage  by  payment  of  interest,  88. 
by  receiving  and  using  the  money,  88. 

of  municipal  bonds  irregularly  issued,  278-282. 
by  subsequent  legislation,  278. 
RECEIVERS,  grounds  for  the  appointment  of,  45G-479. 

the  English  ride,  45C. 

in  United  States  the  power  more  freely  exercised,  457. 

statutory  provisions  for  appointment  of,  457. 

the  appointment  of  an  equitable  remedy,  458. 

appointment  does  not  follow  default  as  of  course,  458,  459,  4G1. 

urgent  necessity  for  appointment  must  be  shown,  459. 

the  question  of  appointment  often  one  of  difficulty,  460. 

appointment  will  not  be  made  against  wishes  of  a  great  majority  of  bond- 
holders, 462. 

equities  and  interests  of  the  majority  considered,  462. 

non-payment  of  interest  for  ten  years  ground  for  appointment,  463. 

liability  of  being  seized  on  execution  ground  for,  464. 

conduct  of  officers  of  corporation  may  require,  465. 

application  of  income  to  completion  of  road  not  ground  for,  466. 

refusal  of  trustees  to  perform  trust,  ground  for,  467. 

appointment  to  secure  profits,  468. 

appointment  to  sell  corporate  property  and  franchises,  469. 

appointment  to  operate  road,  470. 

will  not  be  made  when  road  is  in  hands  of  state  officers,  471. 

whether  the  Supreme  Court  of  the  United  States  will  appoint,  472. 

appointment  by  Circuit  Court  more  appropriate,  473. 

distinction  made  when  mortgage  includes  the  tolls,  474. 

general  rule  deduced  from  authorities,  474. 

a  receiver  in  prior  suit  should  not  be  displaced  in  subsequent  suit,  475. 

should  not  be  appointed  without  notice,  476. 

mortgagee  not  required  to  establish  conclusively  his  right  to  recover,  476. 

individual  bondholder  must  apply  in  behalf  of  all  situated  in  like  manner, 
477. 

tenant  or  lessee  should  be  made  party,  478. 

corporation  cannot  itself  apply  for,  479. 
Selection  of  receivers,  480-482. 

not  necessarily  controlled  by  wish  of  parties,  480. 

policy  of  agreement  upon  two  or  more  representing  different  interests,  481. 

appointment  once  made  cannot  be  assailed  collaterally,  482. 
Jurisdiction  of,  483-492. 

whether  limited  to  that  of  court  appointing,  483. 

can  sue  in  another  state  only  by  comity,  483,  491. 

court  that  first  takes  jurisdiction  retains  it,  484. 
700 


INDEX. 

Reference  is  to  Section*. 
RECEIVERS  (continued). 

where  conflict  of  does  not  relate  to  the  cause  but  to  possession,  4S5. 
mere  filing  of  bill  gives  jurisdiction,  486. 
actual  possession  cannot  be  interfered  with,  487. 
over  line  of  railway  extending  through  several  states,  488. 
the  corporation  may  be  one  in  the  several  states,  4S9. 
court  of  coordinate  jurisdiction  cannot  interfere,  490. 
by  comity  the  title  of  receivers  recognized  in  other  states,  491. 
can  take  property  vested  in  them  into  other  states,  492. 
courts  will  sometimes  protect  their  own  citizens  against  foreign  receivers, 
492. 
Title  and  power  of  in  general,  493-49S. 

title  relates  back  to  order  of  appointment,  493. 

when  bonds  required  cannot  recover  possession  till  these  are  given,  493. 
take  the  property  subject  to  legal  and  equitable  liens,  494. 
cannot  sue  without  express  authority,  495. 
represent  creditors  of  the  company  in  suits,  495. 
relation  of  to  leases  of  the  property,  496. 
court  may  adjust  rent  between  receivers  of  two  roads,  496. 
whether  may  disregard  statute  fixing  traffic  rates,  497. 
what  payments  are  within  discretion  of,  498. 
Cannot  be  sued  without  leave  of  appointing  court,  499-508. 
in  what  courts  a  receiver  may  be  sued,  500. 

court  making  appointment  may  draw  to  itself  all  suits  against  its  receiv- 
ers, 501. 
the  proper  remedies  against,  502. 
statutes  authorizing  suits  against  do  not  avail. 
execution  cannot  be  levied  upon  property  in  hands  of,  5 
interference  with  possession  of  is  contempt  of  court,  505. 
a  few  decisions  against  doctrine  that  receiver  is  not  amenable  to  other  tri- 
bunals, 506,  507. 
soundness  of  the  general  doctrine,  508. 
Liability  for  negligence  oj'  509  515. 

at  law  receivership  no  defence,  510. 
doctrine  of  non-liability  of  in  equity,  511. 
examination  of  discordant  decisions,  51'-'. 
not  personally  liable  for  injuries  by  employees,  513. 
liable  for  damages  occasioned  by  wilful  i  iwer,  ->\  i. 

judgmenl  for  negligence  not  enforcible  as  againsl  m 
Company  after  appointment  of ,  516  520. 

otherwise  when  possession  of  receiver  is  not  exclusive,  .'.i ;,  ;.is. 
liability  of  company  as  affected  by  Btatute,  519. 
cannot  hind  corporation  as  agent, 
hi  charge  and 
will  be  discharged  when  security  no  longer  requires,  521. 
effect  quenl  payment  of  part  of  debl  upon,  521. 

barge  is  a  matter  of  discretion  with  court, 

701 


INDEX. 
Reference  is  to  Sections. 

RECEIVERS  (continued). 

should  not  be  heard  in  opposition  to  discharge,  523. 

effect  of  rescission  of  order  of  appointment  upon  suits,  524. 

specific  complaints  of  maladministration  will  always  receive  attention,  525. 

ground  for  removal  of  two  receivers  that  they  are  hostile,  526. 
Compensation  and  accounts  of,  527-530. 

questions  of  compensation  referred  to  master,  527. 

amount  of  compensation  according  to  duties  and  responsibilities,  528. 

counsel  and  witness  fees  in  resisting  removal,  529. 

appeal  from  decree  to  account  for  a  certain  sum,  530. 

after  object  of  receivership  has  been  accomplished  are  trustees,  548,  549. 

bankruptcy  court  cannot  take  property  from  possession  of,  C91. 
RECEIVERS'  DEBTS  AND  CERTIFICATES,  for  what  purposes  they  may 
be  incurred,  533-538. 

general  principles  governing  expenditures,  533. 

analogy  to  mortgagees'  expenses  for  repairs,  533. 

authorized  only  for  necessary  repairs  and  protection  of  the  property,  534. 

rebuilding  and  building  anew  portions  of  the  road,  535. 

necessity  the  criterion  of  propriety  of,  535. 

should  not  go  outside  purpose  of  receivership,  536. 

court  may  authorize  negotiable  certificates  of  indebtedness,  537. 

certificates  may  be  issued  for  materials  and  labor,  538. 
Priority  of  over  mortgage  liens,  539-544. 

no  question  of  when  mortgagees  consent,  539. 

claim  that  courts  may  give  such  priority  without  consent,  539. 

with  reference  to  what  creditors  question  of  priority  may  arise,  539. 

bondholders  or  mortgagees  obtaining  the  credit  cannot  question  it,  540. 

question  of  priority  over  existing  mortgages,  541. 

mortgage  lien  cannot  be  displaced  without  mortgagee's  consent,  542. 

mortgagor  and  his  assignees  cannot  question  the  priority,  543. 

statutory  provisions  as  to  receivers'  liens,  544. 
Negotiability  of  receivers'  certificates,  545,  546. 

are  not  commercial  paper  in  hands  of  bond  fide  holder,  545. 

consideration  of,  may  be  inquired  into,  546. 
RECITALS,  in  municipal  bonds  of  authority  to  issue  conclusive,  292-294. 
REDEMPTION,  statutes  relating  to  are  part  of  mortgage  contract,  395. 
do  not  apply  to  railroad  existing  in  several  states,  395. 

vested  right  of  cannot  be  impaired  by  statute,  396. 

provision  for  in  New  York,  39  7. 

mortgage  an  entirety  as  respects,  413. 
REFORMATION  of  mortgage  deeds,  98. 
RESERVATION  of  power  to  dispose  of  property  not  necessary  for  use,  94. 

of  power  to  create  prior  lien,  95. 
REMEDIES,  upon  corporate  bonds,  217-221. 

upon  bonds  illegally  issued,  218. 
For  enforcement  of  corporate  securities,  398-405. 

may  be  used  together  or  successively,  398. 
702 


INDEX. 

Reference  is  to  Sections. 

REMEDIES  (continued). 

jurisdiction  in  equity,  though  mortgage  provides  for  a  power  of  sale,  399. 

suit  at  law  upon  the  bonds,  400. 

court  of  equity  may  deliver  possession  to  trustees,  401. 

power  to  take  possession  must  be  exercised  upon  the  entire  property,  401. 

a  threatened  injury  to  the  property  may  be  enjoined,  402. 

general  creditor  cannot  prevent  execution  of  mortgage,  403. 

company  may  be  enjoined  from  taking  up  track,  404. 

a  state  cannot  be  sued  without  its  consent,  405. 

what  are  proper  against  receivers,  502. 
REMOVAL  of  mortgage  trustees  and  filling  vacancies,  371-382. 

of  receivers.     See  Receivers,  521-526. 
REORGANIZATION  of  corporations,  schemes  for,  614-618. 

rights  of  secured  creditors  cannot  be  varied  without  their  consent,  Gil. 
except  through  statute,  614. 

what  will  absolve  parties  from  agreement  for,  615. 

failure  of  bondholder  to  surrender  bonds,  GIG. 

a  party  to  cannot  set  up  secret  agreement,  G17. 

position  of  creditor  holding  bonds  as  collateral  as  to,  618. 

as  affecting  preferred  stockholders  who  join  in,  619-624. 
REPAIRS    by  receivers   and   mortgagees   in    possession.     See    Receivers' 

Debts,  &c,  533-544. 
RHODE  ISLAND,  constitutional  prohibition  of  pledges  of  state  credit,  260. 

statute  respecting  railroad  mortgage  trustees,  381. 

statute  giving  special  lien  upon  railroads,  607. 
RIGHTS  OF  ACTION,  whether  subjects  of  mortgage,  108. 
RIOTERS  seizing  railroad  in  hands  of  receivers  punishable  for  contempt  of 

court,  505. 
ROLLING  STOCK  OF  RAILROADS,  the  legal  nature  of,  L46-187. 

after-acquired  is  subject  to  mortgage,  147-153. 

though  given  before  any  part  of  road  is  built,  147,  1  18. 

need  not  be  specially  mentioned  in  mortgage,  149. 

regarded  as  an  accession  to  the  road,  1  19. 

regarded  as  appurtenant  to  the  road,  L50. 

mortgage  attaches  to  subject  to  existing  liens,  151. 

doctrine  as  to,  in  Alabama.  152. 
Regarded  a&fixtun  s,  154    163. 

considerations  why  it  should  be  so  regarded,  L54. 

actual  fastening  to  the  freehold  nol  essential,  155. 

mortgage  of  need  not  be  recorded  as  chattel  mortgage,  156. 

may  be  assigned  to  particular  divisions  of  a  road,  I 

doctrine  ae  to,  in  Illinois,  1 57. 

cannot  be  levied  upon  and  Bold  under  execution,  I 

doctrine  in  Penn  yl  .  l  60. 

doctrine  in  Kentucky,  L61. 
doctrine  in  Tenne 
doctrine  in  New  Jer  ey,  168,  164. 


INDEX. 
Reference  is  to  Sections. 

ROLLING  STOCK  OF  RAILROADS  (continued). 
Regarded  as  personal  property,  164-170. 

considerations  why  it  should  not  be  regarded  as  fixtures,  1G4. 

doctrine  in  New  York,  165. 

within  the  statute  relating  to  chattel  mortgages,  166. 

doctrine  in  Ohio,  16  7. 

doctrine  in  New  Hampshire,  168. 

doctrine  in  Massachusetts,  169. 

wei'dit  of  authority  that  it  is  personalty,  170. 
Constitutional  and  statutory  provisions  concerning,  171-187. 

constitutional  provisions  that  it  shall  be  considered  personal  property,  171. 

important  that  status  of  should  be  fixed,  171. 

statutes  regarding  in  several  states,  172-186. 

how  rewarded  in  Great  Britain,  187. 

how  regarded  in  Canada,  187,  n. 

SALE  under  decree  of  foreclosure.     See  Foreclosure,  625-652. 
SCRIP-CERTIFICATES  of  government  loans  are  negotiable,  197,  205. 
SEAL  OF  CORPORATION  affords  presumption  of  due  execution,  85. 

not  conclusive  that  it  was  rightfully  affixed,  87. 

implied  in  corporate  bonds,  189. 

imports  a  consideration,  189. 

is  prima  facie  evidence  of  execution  by  proper  authority,  189. 

does  not  destroy  negotiability  of  corporate  notes,  311. 
SET-OFF,  right  of  against  negotiated  bonds,  208. 

no  ri'dit  of  against  mortgage  trustees  in  possession,  368. 
SETTING  ASIDE  OF  SALE.     See  Foreclosure,  642-652. 
SOUTH  CAROLINA,  no  general  statute  authorizing  railroad  mortgages,  61. 

statute  incorporating  purchasers  of  railroad  at  foreclosure,  sale  into  corpo- 
ration, 6  78. 
STATUTE  OF  LIMITATIONS,  when  it  begins  to  run  against  coupons,  340. 
STATUTES  restricting  mortgages  become  part  of  the  contract,  89. 
STATUTORY  MORTGAGES,  English  debentures  are  in  effect,  72. 

effect  of  as  to  personal  property,  74. 

constituted  without  any  deed  of  conveyance,  78. 

can  exist  only  when  declared  with  a  certainty,  79. 

the  intent  to  create  a  lien  must  be  certain,  79. 

construed  like  mortgages  by  deed,  80. 

may  embrace  after-acquired  property,  81. 

release  of  by  state,  82. 

another  mortgagee  may  be  substituted  by  agreement,  83. 

waiver  of  by  state,  83. 
STEAMBOATS,  whether  they  pass  as  appurtenant  to  railroad,  107. 
STOCR,  provision  in  bonds  for  conversion  into,  9  7. 

power  to  issue  for  convertible  bonds  beyond  the  limited  capital,  97. 

of  another  company  may  be  covered  by  mortgage  of  after-acquired  prop- 
erty, 138. 

704 


INDEX. 

Reference  is  to  Sections. 
STOCK  (continued). 

who  may  enforce  right  of  conversion  into,  220. 

option  to  convert  into  must  be  exercised  within  time  limited,  220. 
STOCKHOLDERS,  calls  on  not  subject  to  mortgage  without  legislative  au- 
thority, 103. 

cannot  generally  intervene  in  foreclosure  suits,  146. 
unless  fraud  is  shown,   t  16. 

cannot  share  in  distribution  of  proceeds  of  foreclosure  sale,  640. 
SUBROGATION,  390-394. 

arises  by  operation  of  law  when  mortgage  is  paid  by  a  third  person,  390. 

when  payment  is  made  under  mistake  of  fact,  391. 

to  rights  of  a  state  under  a  railroad  mortgage,  392. 
difficulties  in  the  way  of,  393. 

as  between  a  state  and  a  holder  of  its  own  bonds,  394. 
SUBSCRIPTIONS  of  municipalities  in  aid  of  railroads,  validity  of,  268-276. 

mav  be  annulled  by  constitutional  provisions,  275. 

when  completed  cannot  be  abrogated,  276. 
SUITS  AGAINST  RECEIVERS-^    See  Receivers,  499-515. 
SUITS  BY  RECEIVERS.     See  Receivers,  491,  495. 
SURPLUS  LANDS  may  be  mortgaged  without  statutory  authority,  12. 
SURPLUS  PROCEEDS  of  foreclosure  sale  go  to  corporation,  641. 

TAXATION  of  railroad  bonds  in  hands  of  non-resident.  221. 

power  of  can  be  conferred  only  for  public  purposes,  224. 

public  policy  determines  for  what  public  uses  it  may  be  exercised,   228. 

provision  for  taxation  becomes  part  of  contract  of  municipal  bonds,  300. 
state  cannot  impair  such  contract,  301. 

not  limited  to  the  special  tax  provided,  305. 
TAXES,  provision  in  mortgages  for  payment  of,  96. 
TENNESSEE,  statute  authorizing  railroad  mortgages,  62. 

rolling  stock  how  regarded  in,  162. 

constitutional  prohibition  of  municipal  aid,  261. 

statute  incorporating  purchasers  of  railroads  at  foreclosure  Bale,  679. 
TEXAS,  statute  authorizing  railroad  mortgages,  63. 

rolling  stock  is  personal  property  in,  171. 

constitutional  prohibition  of  municipal  aid,  262. 

enforcement  of  executions  againsl  railroads  in, 

statute  incorporating  purchasers  of  railroad  al  foreclosure  sale,  • 
TOLLS,  when  covered  by  railroad  mortgages.     S    i  I  ■'  omi  ,114  120. 
TRACK,  railroad  company  cannot  take  up  after  m<  104. 

TRAFFIC   i:  \  IKS  fixed  by  Mamie,  whether  receiver  maj  diari 
TRANSPORTATION  SUBSCRIPT  [ONS,  lien  of,  I 
TRUST  DEED,  the  usual  form  of  a  railroad  morl 
TRUSTEE  PROCESS,  funds  in  po  Pftn)  ""' 

ISO. 
TRL'SI  EES,  railroad  mortgages  usuallj  made  to  tw ■  more  jointly,  I 

Nature  >>/  the  It 

r?Af 

46  lOO 


INDEX. 

Reference  is  to  Sections. 

TRUSTEES  (continued). 

depends  upon  relations  of  the  parties,  and  nature  of  the  property,  357. 

duty  of,  to  protect  the  security,  358. 

have  no  power  to  assent  to  priority  of  other  debts,  359. 

in  possession,  are  trustees  of  the  corporation  and  of  bondholders,  360. 
cannot  deal  in  the  securities  for  their  private  gain,  360. 

represent  the  bondholders  in  suits  affecting  the  security,  361. 

failing  or  refusing  to  act,  bondholders  may  sue,  362. 
Effect  of  notice  to,  363,  364. 

is  generally  notice  to  the  bondholders,  363. 

is  not  always  notice  to  bondholders,  364. 
In  possession,  rights  of,  365-370. 

can  use  the  franchise  so  far  as  necessary,  365. 

entitled  to  retain  possession  until  debt  is  paid,  365. 

after  an  absolute  foreclosure,  hold  title  in  trust,  366. 
may  lease  the  road,  367. 

no  right  of  set-off  against,  368. 

retain  their  trust  until  it  is  fulfilled,  369. 

are  liable  as  common  carriers,  370. 
Removal  of  and  filling  of  vacancies,  371-376. 

when  may  be  removed  in  ex  parte  proceeding,  371. 

absent  from  the  country  may  be  removed,  3  72. 

sufficient  grounds  for  must  appear,  373. 

when  statute  providing  for  election  of  new  trustees  void,  3  74. 

may  become  bondholders  to  qualify  themselves  to  act,  375. 

when  board  must  be  kept  filled,  376. 
Statutory  provisions  regarding  duties  and  choice  of,  377-382. 

court  of  equity  may  put  in  possession,  401. 

may  become  plaintiff  in  foreclosure  suit  brought  by  bondholders,  433,  436. 

may  dismiss  proceedings  begun  by  bondholders  and  sue  in  another  court, 
436. 

refusal  of  to  perform  trust  ground  for  appointment  of  receivers,  467. 

ex  officio  as  state  officers  not  superseded  by  receivers,  471. 
Debts  and  expenses  incurred  in  management  of  the  property,  547—555. 

lien  upon  the  trust  property  for  repayment,  54  7. 

when  receiver  is  in  effect  a  trustee,  548,  549. 

floating  debts  of  entitled  to  no  priority  over  other  trust  debts,  549. 

the  lien  of  redeemable,  and  confers  no  right  to  sale  in  first  instance,  549. 

policy  of  confining  to  legitimate  objects  of  the  trust,  550. 

contracted  for  completing  railroad,  551. 

a  creditor  not  a  trustee  has  no  claim  to  be  reimbursed  advances,  552. 

compensation  of,  553. 

services  of  attorney  employed  in  foreclosure  suit,  554. 

not  liable  for  use  of  land  outside  location  of  railroad,  555. 
Liability  of  as  common  carriers  operating  railroad,  556. 

regarded  as  owners  of  the  road  as  respects  this  liability,  556. 
May  use  their  discretion  as  to  making  foreclosure  sale,  630. 

706 


INDEX. 

Reference  is  to  Sections. 

TRUSTEES  (continued). 

cannot  properly  become  purchasers  at  their  own  sale,  646. 
should  be  made  party  to  suit  to  set  aside  foreclosure  sale,  651. 

ULTRA  VIRES,  mortgages  of  corporate  franchises  without  statutory  author- 
ity. 1-25. 

mortgages  for  purposes  not  within  the  statutory  authority,  10. 

corporations  may  be  estopped  to  claim  defence  of,  23. 

indorsement  or  guaranty  when  binding  upon  corporation,  35 
UNDERTAKING,  mortgage  of,  99-103. 

meaning  of  word,  100. 

used  in  connection  with  other  words,  101.  * 

word  may  include  after-acquired  property,  128.  T^     ^P* 

USAGE  OF  TRADE  makes  sealed  bonds  negotiable  *  J  9§i^fefco*J* 

"""' ' ' ■"— -^ 

*rf!k 

VENDORS'  LIENS  for  land  sold  to  railroad  cofnpi/nW,  4ll.  ?     >  &  ^ 
VERMONT,  statute  authorizing  railroad  mortgages,*^*.*  *  *,  ,••*  ,",' V> 

provisions  as  to  mortgages  of  rolling  stock  in,  184.  '    -^ 

statute  authorizing  municipal  aid  to  railroads,  263. 

statute  respecting  duties  and  choice  of  mortgage  trustees,  379. 

statute  protecting  laborers  upon  railroads,  608. 

statute  incorporating  purchasers  at  foreclosure  sale,  681. 
VIRGINIA,  statute  authorizing  railroad  mortgages,  65. 

statute  authorizing  municipal  aid  to  railroads,  264. 

provisions  for  enforcing  executions  against  railroads  in,  429. 

statute  incorporating  purchasers  at  foreclosure  sale, 
VOTES,  of  municipalities  to  aid  railroads,  validity  of,  _■ 

meaning  of  two  thirds  of  qualified  Voters,  269. 

effect  of  is  to  empower  municipal  officers  to  act,  270. 

WEST  VIRGINIA,  statute  authorizing  railroad  m 

rolling  stock  is  personal  property  in,  171,  185. 

statute  authorizing  municipal  aid  to  railroads, 

statute  incorporating  purchasers  at  foreclosure  Bale, 
WISCONSIN,  statute  authorizing  railroad  mortga 

provisions  as  to  recording  mortgages  of  rolling  Btock,  I 

statute  authorizing  municipal  aid  to  railroads,  266. 

statute  protecting  laborers  upon  railroad-,  610. 

statute  incorporating  purchasers  at  foreclosure  sale, 

707 


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Li  !Y 

UNIVE?  ORNIA 


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